Daily Market Color

Fed Remains Optimistic on Economic Outlook, Leaves Rates Unchanged

This afternoon the Federal Open Market Committee concluded its two-day meeting, leaving the benchmark borrowing rate unchanged as expected.  Of more suspense for the financial markets was the statement released afterwards, which reinforced the existing plan for two additional rate hikes in 2017 despite less than stellar growth in the US during Q1.  The Fed characterized the recent pullback in economic activity as “likely to be transitory” and confirmed that “near-term risks to the economic outlook appear roughly balanced.”  Also of note in the statement was the FOMC’s observation of inflation remaining close to their long-run objective while factors driving household consumption growth “remained solid.”  US Treasurys saw a moderate selloff following the news, and yields/swap rates are currently up 1-5 bps across the curve, after holding near unchanged for the majority of the day.  The yield on the 10-year note increased 4 bps to 2.32%, apparently unaffected by the report from the Treasury Borrowing Advisory Committee (TBAC) this morning, which seemingly contradicted recent comments from Steven Mnuchin in stating that the TBAC saw no evidence of “notably strong or sustainable demand” for ultra-long bonds.  US stocks traded marginally lower on the day, weighed down largely by mining stocks whose value took a hit after a 4% drop in copper prices. The US dollar gained 0.2% against major currencies during the session, while crude oil prices remained near opening levels at a one-month low.

Economic data released today included ADP’s employment report, which displayed the lowest increase in monthly private payrolls since October 2016.  The number of new hires by private employers in the US totaled 177,000 in April, falling from March’s robust 255,000 revised level and marginally beating expectations of 175,000.  The reduction in new payrolls added is likely related to the existing struggles of private employers to find qualified workers in the continually tightening labor market.  Often a leading indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows a recovery in Friday’s nonfarm payrolls figure compared to March’s sub-100,000 disappointment, with current expectations pointing towards a 185,000-monthly increase for April.  Other key data today included a positive reading of the Institute for Supply Management’s non-manufacturing index, which exceeded expectations with a monthly rise to 57.5.  April’s reading was 2.3 points more than March’s level, highlighted by non-factory orders which jumped to its highest mark since August 2005.

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