The Market Today
Fed Speakers Hit the Wires Amidst Changing Market Conditions
by Craig Dismuke, Dudley Carter
Fed Communications – Embrace Normalization of the Markets?: There are no economic reports on the calendar today but plenty of Fed news hitting the wires. Given the recent market action (higher yields, fears of more rate hikes than anticipated, volatility in stocks, etc…), any Fed communications will be a chance for Fed officials to either re-establish a less assertive version of a Fed-put or to embrace the normalization of the markets. During the height of the volatility, officials chose to let the markets find their own footing. The Fed’s Semiannual Monetary Policy Report is due out at 10:00 a.m. CT in advance of Fed Chair Powell’s first testimony before Congress as Chair next Wednesday. Additionally, there are a host of Fed speakers speaking at the 2018 Monetary Policy Forum throughout the day, including Boston’s Rosengren, Cleveland’s Mester, Kansas City’s George, and New York’s Dudley. Separately, San Francisco’s Williams will speak on monetary policy in Los Angeles today.
Yesterday – Stocks Trimmed Morning Gains Despite Rates Pulling Back: The major equity indices pared sharp morning gains to differing degrees and ended an up-and-down day in mixed fashion. The Dow ultimately gained 0.66% after rising as much 1.45% before lunch. The S&P cut an intraday gain of 1.11% to almost nil and closed up just 0.10%. The Nasdaq missed out on the boost from non-tech sectors and lagged with a 0.11% decline. Yields, which moved up to new multi-year highs across the curve Wednesday after the release of the January Fed Minutes, pulled back and helped support the equity improvement. The 2-year yield fell for the first time in nine days, dropping 2.0 bps to finish at 2.25%. The 5-year yield lost the most, slipping 3.5 bps to 2.66%. The 10-year yield shed 2.9 bps to 2.92%. On the Fed front, Atlanta’s Bostic (voter) said “things continue to look up” for the economy but St. Louis’s Bullard (non-voter) cautioned that murmurings of four 2018 hikes “seems like a lot” to him. On a similar note, Kaplan (non-voter) from the Dallas Fed noted three 2018 rate increases remains a “reasonable base case.”
Overnight – Longer Yields Erase Post-Fed-Minutes Climb: U.S. equity futures improved more than 0.4% in overnight trading as the Treasury curve shifted lower and longer maturities completely unwound their post-Fed-Minutes rise. Equity futures tracked firm gains in Asia and avoided responding to a less optimistic tone across Europe that has the Stoxx Europe 600 loitering around unchanged. Declining bond yields continued to give equities a boost as most sovereign curves have flattened on lower yields since the start of European trading. The 10-year Treasury yield had declined 3.1 bps to 2.89%, in line with a 3.7 bps drop for the German and French 10-year yields. The overnight pullback in the U.S. 10-year yield also put it back below the 2.90% level it was trading at just before the Fed Minutes were released on Wednesday. The 5-year yield was down 2.2 bps at 2.63%, also below its pre-Fed-Minutes level. The 2-year yield was down 0.8 bps at 2.23%. With inflation front and center of investors’ minds, worth noting was a slightly firmer-than-expected 0.9% YoY increase for core consumer prices in Japan.