Recap – Last Friday, equity markets pared their losses and bonds surrendered a bit of their rally from earlier in the week. The S&P 500 still ended the week -1.02% lower while the Dow and Nasdaq had similar moves of -1.53% and -0.79%. Treasury yields rallied for the third consecutive week, with 10-year yields down -19 basis points taking the two-year and 10-year yield curve to eight basis points after briefly dipping below zero earlier in the week. That small sell-off on Friday was driven by new reports that Germany could consider running a fiscal deficit to address a downturn.

As we commence a new week markets will be looking to see if Jerome Powell can right the ship with the Fed’s annual Jackson Hole symposium due for the end of the week. Expect the market to be leaning on every word Powell says – especially given that there’s been relatively muted Fedspeak in the wake of the July Federal Open Market Committee (FOMC) meeting. Obviously since then we’ve had a ratcheting up in the trade war, slowing global growth and the massive focus on the inversion of the yield curve last week.

President Trump stated that the trade talks are ongoing. Prior to that, White House National Economic Council Director Larry Kudlow told Fox News that talks with China had been “positive” and that if deputies meetings pan out then the plan is still to have China come to the White House and continue negotiations, without expanding on any timeframe. Kudlow also downplayed recession fears while adding to upbeat commentary was Trump’s trade advisor, Peter Navarro, who told ABC that he expected “a strong economy through 2020 and beyond.”

Germany floated the idea of a $55 billion fiscal stimulus plan if things get worse — ‘stimulus’ to today’s class of investors is like cheese to a mouse. Add that to the most recent European Central Bank (ECB) musings that it may well add equities to its quantitative easing (QE) arsenal. There is tremendous hope that Jay Powell will sound market-friendly this Friday at Jackson Hole, as in prepared to prime the monetary pump. And the White House is now openly discussing using the tariff windfall to fund a “10% middle-income tax cut” (I guess an election is coming soon). Meanwhile, the New York Fed took its third quarter real GDP growth estimate up to a 1.8% annual rate from 1.6%, alleviating some of the earlier recessionary fears (though still close to stall-speed)

Overnight, the MSCI Asia Pacific Index rose 0.8% as optimism over the trade outlook was boosted by Trump’s comments. In Europe, stocks are also in rally mode with trade hopes again the catalyst for the move. It’s a similar story in the U.S. where S&P futures are pointing to a higher open.

Treasury yields are ticking higher and the yield curve is steepening a touch following reports that the U.S. government is contemplating a 50- and/or 100-year bond issuance. The 2s/10s spread has gone from zero last Wednesday to plus nine basis points today. The 30-year T-bond yield has jumped seven basis points today, to 2.11%, and is now up 20 basis points from last week’s intraday record-low 1.91%.

The U.S. dollar is a tad firmer, undercutting gold by 0.9% to $1,500 per ounce on the nose. Oil prices, however, are joining in on the early-week risk-on parade, advancing 0.4% to $55.09 per barrel for West Texas Intermediate (WTI).

For a more in-depth analysis of the economy and markets, be sure to read this week’s edition of the Weekly Relative Value – Inconvenient Truths – to be released later this morning.

The Week Ahead – It’s the Monday of the third week in August, so needless to say, things are very quiet. There is no economic data of note scheduled for the U.S. today. The key reports this week are July New and Existing Home Sales. Fed Chair Jerome Powell speaks on Friday at the Jackson Hole Symposium. Also this week, the Bureau of Labor Statistics (BLS) will release the preliminary employment benchmark revision, and the Congressional Budget Office (CBO) will release updated budget and economic projections.

Monday, Aug 19
No major economic releases scheduled.

Tuesday, Aug 20
No major economic releases scheduled.

Wednesday, Aug 21
7:00 am: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 am: Existing Home Sales for July from the National Association of Realtors (NAR). The consensus is for 5.39 million annualized, up from 5.27 million last month.

10:00 am: The Bureau of Labor Statistics will release the preliminary estimate of the upcoming annual benchmark revision.

11:00 am: CBO to release updated Budget and Economic Projections.

2:00 pm: FOMC Minutes, meeting of July 30-31, 2019

Thursday, Aug 22
8:30 am: The initial weekly unemployment claims report will be released. The consensus is for 215 thousand initial claims, down from 220 thousand last week.

11:00 am: The Kansas City Fed manufacturing survey for August.

Friday, Aug 23
10:00 am: New Home Sales for July from the Census Bureau. The consensus is for 645 thousand annualized, down from 646 thousand in June.

10:00 am: Speech by Fed Chair Jerome Powell, Challenges for Monetary Policy, at the Jackson Hole Economic Policy Symposium.