Last week’s monetary policy developments and economic reports kept the markets’ attention. The Federal Reserve (Fed) cut interest rates for the first time in a decade. The July employment report showed the unemployment rate remained at 3.7%, while hourly earnings increased more than expected. However, a surprise escalation in the trade dispute with China caught markets off guard. The outlook for the next few months has likely changed as a result of this development.
China will counter President Trump’s new tariff increases and I don’t expect the headline noise to be positive. A few months ago, I mentioned that the seven-Yuan-to-the-dollar threshold was key psychologically — that level was broken over the weekend.
Over the coming weeks, I anticipate stocks will retest the levels seen in May. Bond yields have likely fallen in advance of the move in equities, with the 10-year Treasury trading near 1.75%, but it is unlikely rates will rise in the short term.
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