Daily Market Color

FOMC Minutes Point Towards December Rate Hike


December Rate Hike Near Certain

Today the minutes from the FOMC’s October 31-November 1 meeting were released, and a December rate hike is now all but certain after the text stated that “another increase in the target range for the federal funds rate was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged.”  As per Fed Fund futures, the current probability for an interest rate increase next month is 100%, up from about 97% pre-release of the minutes.  Investors will look to the December meeting (12th-13th) to provide further guidance on the future outlook, as economic projections from the Fed districts will be submitted at that meeting.  Thus far, Fed officials have been projecting three rate increases for 2018.  



US Treasurys rallied during the trading session, with the belly of the curve experiencing the largest decline in yields/swap rates.  The yield on the 10-year note declined 3 bps and is currently trading near 2.32% as we head into the holiday.  The US dollar fell to its lowest levels in more than a month, down 0.6% against major currencies.  Major stock indices held within a tight range for the day, with the DJIA (-0.2%) and S&P 500 (-.05%) edging lower while the tech-heavy Nasdaq inched higher (+0.1%).   In commodities, crude oil futures surged more than 2% after a report from the Energy Information Agency displayed US inventories fell by 1.86 million last week.  WTI crude is now trading at a 2-year high of $58/barrel.        



Mixed Economic Data

A report from the Labor Department showed weekly initial jobless claims trending near a 44-year low, as the labor market disruption from the recent hurricanes continues to wane.  The number of new claims for the week ended November 18th increased to a seasonally adjusted 239,000 (240,000 expected), down 13,000 from the previous week’s revised level.  The four-week moving average of claims rose slightly by 1,250 to 239,750, well below the 300,000 threshold associated with a healthy labor market.  Also detailed in the report, the number of continuing claims rose by 36,000 to 1.904 million for the week ended November 11th.



Headline durable goods orders unexpectedly fell 1.2% during the month of October, although much of the shift was driven by a 17% MoM drop in aircraft orders.  Core capital goods orders (nondefense, excluding aircrafts) decreased 0.5% (-0.4% expected), representing the steepest decline in over a year.  Helping to balance out the Commerce Department’s report, core capital shipments rose for a ninth straight month, up 0.4% (+0.3% expected), in support of continued strength in business investment.


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