Daily Market Color

Fed Minutes Highlight Inflation, Labor Concerns with Rate Hike “Relatively Soon”

With the focus centered on the release of September’s FOMC meeting minutes, markets generally traded sideways for the majority of the day.  Details behind last month’s meeting confirmed a divided Fed, highlighted by three dissenters and a general consensus that a rate hike would be appropriate “relatively soon.”  While several Fed members affirmed that the decision was a “close call,” inflationary progress proved to be a major factor leading to the holding steady of rates at the September meeting.  The policymakers disagreed on whether or not the current 1.7% inflation level was close enough to the 2% mandate, with dovish members citing that “there were few signs of emerging inflationary pressures.”  The current and future status of the labor market was also a heavily debated topic that prompted arguments from both sides.  Hawkish officials feared a prolonged delay would force a rapid tightening in the near future that could severely dampen economic expansion.  The next meeting is scheduled for November 1-2, although current market probabilities for a Fed rate increase the week before the presidential election remain low, despite Yellen’s insistence that politics will not play a role in the timing of future Fed rate decisions.

The feature economic data release for today was the JOLTS labor report that showed the number of U.S. job openings at its lowest level in eight months.  With an expected 5.75 million openings, August’s figure missed the mark with 5.443 million job postings.  An often quoted employment metric by the Fed, the JOLTS statistics still reflect a strong underlying labor force, but the 3.6% fall in openings is still a potential point of concern if sustained in the future releases.

Overseas, the British pound halted its four-day slide after Prime Minister Theresa May acknowledged that Parliament should have the opportunity to debate her plan to invoke Article 50 as early as next March.  While PM May did not guarantee lawmakers an actual vote, her openness to outside opinion led the U.K. currency to firm up and find a base vs. most major currencies.  Emerging economies have seen political issues affect markets recently as well.  In Thailand, local equities have fallen nearly 6.5% since last week after it was reported that King Bhumibol Abulyadej’s health is on the decline.  South Africa saw its currency plummet 4% yesterday when it was first announced that Finance Minister Pravin Gordhan would be charged with fraud, but partially reversed the sell off today after an update that prosecutors may reconsider moving forward with the charge. 

All the major U.S. stock indexes are within 0.25% up or down on the day, while Treasury yields/swaps rates remain mostly unchanged for the day.  Both Brent and WTI crude prices closed down a little less than 1% as investors continue to question the likelihood of future production freezes by OPEC and Russia.               


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