Daily Market Color August 26, 2019Trade Tension Dominate Market Sentiment (Again) “Sorry, it’s the way I negotiate.” Markets whipsawed back and forth as conflicting messages on trade lead to a volatile weekend that typified US-China trade talks thus far. President Trump told reporters yesterday at the G7 summit that he had “second thoughts” about the turn that the trade war had taken. But later that day top economic advisor Larry Kudlow clarified, saying that the President meant to say that he “regrets not raising the tariffs higher.” After those comments, S&P 500 futures took a nose dive, falling as much as 1.2% before President Trump pivoted again, saying that “China called, they want a deal.” Chinese sources refuted that such a call took place, but that optimism was enough to help equities bounce back- the S&P 500 closing up 1.11% on the day. US Treasury yields/swap rates finished the day near unchanged as Trump’s conciliatory tone at the final day of the G-7 summit supplemented his pro-China trade rhetoric. The yield on the 10-year note remained near multi-year lows at 1.535% to close out the trading session. Trump also tackled ongoing tensions with Iran at the summit, signaling he would be open to meeting with Iranian President Hassan Rouhani in the near future. Prices of crude oil futures finished the day marginally lower (-1%) as the potential for an outsized supply following a US-Tehran deal outweighed the expected demand benefit from a potential US-China trade accord. Looking ahead to the rest of the week, the only thing that seems assured is additional market volatility. Trade tensions will continue to dominate headlines, as will any new hints around the Fed’s next rate decisions. Fed funds futures continue to imply an aggressive path of Fed rate cuts over the next year (and a 100% likelihood of a rate cut at next month’s FOMC meeting) despite little in the way of commitment or specifics from Chair Powell or the Fed. Interestingly, in Friday’s speech at Jackson Hole, Powell once again referenced an easing in financial conditions- a reference to the accommodation provided by the falling of long-term market rates. If the Powell Fed begins to monitor the market’s expectations of future rates as an input into monetary policy that would represent a remarkable departure from the Yellen and Bernanke Feds of the past.