Overview: Global stocks ended the first week of 2020 relatively unchanged. A strong rally on the first trading day of the year was fueled by positive news related to an additional China central bank (PBOC) reserve ratio cut, which should support Chinese growth. Markets reversed course on Friday, following escalating tensions between the U.S. and Iran. A siege of the U.S. Embassy in Baghdad led President Trump to order a drone strike which killed Iranian general Soleimani, leader of Iran’s Quds Force. Oil prices surged over 3% on concerns of a retaliatory attack on oil tankers and production facilities. In a flight-to-safety trade, interest rates fell, with the 10-Year Treasury yield lower by 0.12% (12 basis points) to 1.79%, after beginning the year at 1.91%.
Looking Ahead: The economic highlight of the week will be the jobs report on Friday, where the consensus is for 160,000 new jobs and for the unemployment rate to remain at 3.5%. The ‘Phase 1’ trade agreement between the U.S. and China is scheduled for signature on January 15, and markets are still hoping for a Brexit deal by January 31. As always, the Federal Open Market Committee (FOMC) policy will be watched by investors. December’s FOMC minutes published last week reiterated modest economic growth and a strong labor backdrop. Minutes also detailed improving inflation, and we expect policy action to remain limited and support stable interest rates for the foreseeable future.
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