The Market Today

Fed Officials Drown out Message from Minutes


by Craig Dismuke, Dudley Carter

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TODAY’S CALENDAR

Fedspeak Surrounds Release of FOMC Minutes: Already this morning, two Fed officials have made official comments as detailed below.  Chicago’s Fed Bank President Evans is scheduled to speak at 8:00 a.m. CT and Boston Bank President Rosengren is scheduled for 10:30 a.m.  Evans has historically been on the dovish side of the Fed while Rosengren has been more hawkish.  Both are voting members this year. Interestingly, the barrage of Fedspeakers, including five more on tomorrow’s calendar, comes at the same time that the Fed will release its December FOMC Meeting Minutes. Those Minutes are set for release at 1:00 p.m. CT today.  Perhaps the Minutes showed less patience than the Fed now wants to emphasize.  Either way, the more timely Fedspeak will temper the message from the Minutes.

 

Bullard – Further Rate Hikes Could Lead to a Recession: St. Louis Fed Bank President Bullard was interviewed by the WSJ in an article posted this morning, saying that the Fed is “bordering on going too far and possibly tipping the economy into recession.”  Bullard, one of the more dovish voices at the Fed in recent years, has argued for quite a while that the Fed should cease rate increases because inflation does not appear poised to overheat.  He is a voting member this year.

 

Bostic – Uncertainties Should Yield Patience from Fed This Year:  Atlanta Fed Bank President Bostic said in prepared remarks this morning as detailed in a WSJ article, “A patient approach to monetary policy adjustments in the coming year is fully warranted in light of the uncertainties about the state of the economy and about what level of policy rates is consistent with a neutral stance.”  Bostic has been fairly mainstream in his policy opinions since joining the Fed.  He is not a voting member this year.

 

TRADING ACTIVITY

Yesterday – Treasury Yields Rose With Stocks on Investors’ Hopes Trade Deal Is in the Works: Treasury yields rose Tuesday as stocks gained for a third consecutive session, with both recovering further away from their most recent lows. After an up-and-down day of trading, almost all of which was contained within positive territory, all three major indices gained roughly 1%. A pre-market tweet from President Trump that “Talks with China are going very well!” was followed shortly by multiple reports that the vice-ministers involved in those talks had made progress over the last two days. The WSJ wrote, “The U.S. and China made progress on narrowing their differences on trade issues, especially on purchases of U.S. goods and services and widening access to China’s markets, though the two sides are far from striking a deal.” The same report also indicated the talks, initially scheduled to end Tuesday, would continue on Wednesday. The S&P 500’s Tuesday gain pushed the index up 9.5% from its Christmas Eve low. As stocks rose, and then regained their footing after a brief turn lower, Treasury yields turned higher and climbed steadily throughout the session. In a flattening fashion, the 2-year yield added 4.5 bps to 2.59% and the 10-year yield rose 3.2 bps to 2.73%. The 2-year yield has added back 20.5 bps over the last three sessions since a crumbling manufacturing ISM report sent the yield to 2.38%, a low back to May. The 10-year yield has added back 17.5 bps over the same period.

 

Overnight – Risk Remains This Week’s Pick as Markets Look for Progress on Trade: Global equities extended the weekly win streak into Wednesday’s session on hopes for positive developments on two fronts causing the most severe heartburn: trade and Fed policy. An unplanned third day of talks between the U.S. and China were seen as a sign that potential positive progress has been made that could lead to a de-escalation of tensions between the world’s two largest economies. Those talks, initially scheduled to end Tuesday, carried over into Wednesday, a development that a spokesman from the Chinese foreign ministry said shows both sides are serious about making a deal. A state-run newspaper in China said both countries would release a statement on Thursday morning Beijing time. Shares in China climbed 1.0%, slightly outpacing the Stoxx Europe 600’s 0.9% gain. Buried beneath all of the trade headlines was an unexpected tick lower in the Eurozone’s unemployment rate to 7.9% in November, the lowest since October 2009. Elsewhere, oil prices were up for an eighth day pushing WTI across the $50 mark for the first time since December 14, and U.S. futures firmed up 0.5%. Another positive day for risk assets kept slight upward pressure on core bond yields as investors wait to hear from three separate Fed officials before they read the Fed minutes to see how concerned officials are about risks to the outlook, and confirmation they are willing to be patient with policy in 2019. The 2-year yield was up 0.8 bps with the 10-year yield 1.4 bps higher.

 

JOLTS Reflects Some Moderation in November: The BLS released its November JOLTS data Tuesday showing a downtick in the number of open job positions to 6.888MM from 7.131MM (revised up 52k, second most on record) in October and some moderation across the other key metrics. Outside of an increase in the number of available jobs at education and health service providers and state and local governments, each of the other sectors reported fewer open positions. The openings rate, which puts openings in the context of current employment, fell to 4.4%, still strong for the cycle but down from its best 4.7% reading from August. The other key indicators from the report also softened. The hires rate fell from 4.0% to 3.8%. And while the layoffs and quits rates were both unchanged, they remained off their cycle-best levels from earlier in the year and both posted month-over-month declines in absolute levels.

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