by Connor Darrell CFA, Assistant Vice President – Head of Investments
Global equities continued to ride the wave of momentum created by the agreement of a “Phase One” trade deal between the U.S. and China and extended their advance into record territory. President Donald Trump and Chinese Vice Premier Liu He finally signed on the dotted line last week, officially stamping the first bit of tangible trade progress to date. The agreement mandates that China increase its imports from the United States by approximately $200 billion and decreases U.S.-enacted tariffs on Chinese goods. Progress has also been made with respect to intellectual property protections and the opening of Chinese financial markets, but much work remains to be done on these two key areas of contention, leaving the door open for additional headline risks and setting the stage for a drawn out negotiating process that could extend beyond Donald Trump’s first term as president. Substantial U.S. tariffs will continue to remain in place as the negotiations continue, but markets have clearly looked positively upon the progress that has been made thus far.

In the bond market, yields remained largely unchanged throughout the week as investors continued to favor risk-assets such as equities. With the Federal Reserve on what is expected to be an extended pause with respect to rate changes, there has been little new to report in terms of monetary policy of late. However, in comments last week, Federal Reserve Bank of Dallas President Robert Kaplan became the first Fed official to explicitly acknowledge that recent actions by the Fed to inject liquidity into the financial system may have led to an increase in investor risk-taking. He warned that the central bank should be cognizant of its impact on risk appetite in financial markets moving forward as it considers future policy changes. Kaplan’s comments echo the sentiment of many market “bears” who have argued that equity market valuations have become stretched as a result of elevated levels of enthusiasm among investors.