Daily Market Color August 22, 2018FOMC Minutes Yield No Surprises, Trump and Trade in Focus FOMC Minutes Signal Near Term Hike, Highlight Trade Concerns Today the Fed released the minutes from its July 31-Aug. 1 meeting in which the Committee made the decision to hold its benchmark borrowing rate at a target range of 1.75%-2.00%. The primary items discussed in the meeting had no significant surprises for the financial markets and included: Removal of the word “accommodative” from the description of its monetary policy, with many members feeling it will “no longer be appropriate” Acknowledgement by all officials of the ongoing trade disputes as “an important source of uncertainty and risks” that could reduce business spending, hiring, and productivity while increasing the final costs of items purchased by US households Uncertainty around the implementation of the Fed’s balance sheet strategy, noting that the bulk of the decisions would be made “in the fall” The next Fed meeting will take place September 25th-26th, at which time the FOMC the market is assessing over a 90% likelihood of another quarter point rate hike. Markets Balance Earnings, Trade, Politics In a day that featured strong earnings reports from retailers such as Target and Lowe’s, financials markets struggled to find direction between the strength in the corporate sector, ongoing trade concerns, and political uncertainty in the Trump administration. The Nasdaq was the only major equity index to post a gain on the day, closing up 0.38%, while the S&P 500 finished just below its record high set yesterday (-0.04%) and the DJIA lost 0.34%. US Treasurys held within a tight range throughout the trading session, with the 10yr note closing at a yield near 2.82% (-1bp). In foreign exchange markets, the US Dollar (USD) fell 0.3% vs the Euro (EUR) and gained 0.2% vs the Japanese Yen (JPY). Crude oil futures surged to the highest level in the past 2 weeks, gaining 3.1% and settling at $67.86/barrel. Much of the rise was driven by a larger than expected drawdown in US crude supply (5.8 million barrels) last week. Presidential Political Peril Much of today’s political headlines remained pinned to the unfolding drama in the legal prosecution cases of President Trump’s former personal lawyer, Michael Cohen, and former campaign manager, Paul Manafort. Since the outcome of both cases broke within an hour of each other yesterday afternoon, Trump has expressed his views on both matters via tweets, with very different tones for each of the two individuals involved: If anyone is looking for a good lawyer, I would strongly suggest that you don’t retain the services of Michael Cohen! I feel very badly for Paul Manafort and his wonderful family. “Justice” took a 12 year old tax case, among other things, applied tremendous pressure on him and, unlike Michael Cohen, he refused to “break” – make up stories in order to get a “deal.” Such respect for a brave man! Cohen’s lawyer has maintained a steady verbal assault against Trump, stating this morning that the POTUS should be “indicted and jailed” and even if offered, Cohen would never accept a pardon from someone so corrupt. It was also confirmed that, while not required in his plea agreement with prosecutors, Cohen would be willing to keep providing information about his dealings with Trump to authorities.
