Markets around the world have remained subdued over the past week as equities and bonds have traded within a tight range, just below all time highs in the case of the S&P 500. The 10 Year Treasury Yield is rangebound between 2% and 2.10%, causing bonds and other interest rate sensitive assets to tread water. Part of this placid state is typical of summer doldrums, when many investors are out of the office. The rest is due to the highly anticipated interest rate decision by the Federal Reserve next week. The bond market is expecting at least a 25 basis point cut. The bigger question is whether follow up commentary hints at more cuts later in the year. It is amazing to me how each word of the Fed’s statement is analyzed and reanalyzed for hidden meaning. This will surely be the case next week. The positive moves in both stocks and bonds this year have been the result of anticipated help from the Central Bank in the face of weakening economic conditions here in the U.S., as well as continued weakness around the world. The rubber meets the road on this next week and professional investors don’t want to get caught on the wrong side of a surprise.
News from London overnight revealed that Boris Johnson will replace Theresa May as Great Britain’s Prime Minister. Mr. Johnson is a leader in the Conservative Party and very much pro Brexit. He has stated that Great Britain will leave the European Union by October 31. This is a very big deal economically across the pond and will surely cause some shifting of assets as we get closer to that date and more details are revealed. On a relatively positive note here at home, it appears that President Trump and Congress have agreed to raise the debt ceiling through July 2021. This will allow for funding of the government and avoid the potential for a shutdown later this year.
I hope everyone is taking a little time off for vacation and relaxation this summer. I am headed to NYC for meetings this week and then to Key West next week for some family time. I will provide next week’s commentary from there.