Last week, the Federal Reserve (Fed) reduced interest rates by 25 basis points in a much-anticipated move. My biggest takeaway from the Fed meeting is the diverging views on what comes next with regards to monetary policy. A clear split has emerged, with one official wanting more easing, some wanting rates to be kept unchanged and the majority seeking gradual rate modifications as part of a mid-cycle adjustment. The central bank has also been making headlines recently for the volatility in the repo market. The New York Fed has been injecting liquidity to ensure its proper functioning of this market; however, the pressures in repo rates add to the challenging current environment for traders.
Despite the relative easing of trade tensions between the U.S. and China, markets will be forced to weigh the current and future state of the economy. In Europe, weak manufacturing and non-manufacturing signs over the weekend have pressured stocks lower, while yields have fallen. I expect a choppy market in the near term, with stocks constrained by their proximity to the all-time high. Treasury yields have been vacillating since the beginning of August, and I don’t expect the volatility to abate any time soon.
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