Risk Assets Edge Lower Post-Fed Meeting with December Rate Hike More Likely

Volatility in US financial markets eased today as investor’s absorbed the news from yesterday’s Fed announcement.  The more hawkish-than-expected tone from the FOMC pushed the probability of a December rate hike to greater than 65% after being near 30% as recently as a month ago.  All three major US stock indices trended lower on the day, with the DJIA posting its first loss in ten days.  Treasurys fluctuated throughout the session before ultimately finishing lower, as yields/swap rates increased 1-2 bps across the curve.  The US dollar also edged lower, declining 0.1% against major currencies.  In commodities, WTI crude oil futures were nearly unchanged for the session, closing near $50.75/barrel.  Gold continued its decline, falling 0.9% to a four-week low of $1,290/ounce.
 
A light day of economic data was highlighted by the weekly initial jobless claims for the week ended September 16^th.  The number of Americans filing for unemployment benefits for the first time last week totaled a seasonally adjusted 259,000 (300,000 expected) — a 23,000 decrease from the previous week’s revised level, as the impact from Hurricanes Harvey and Irma on the labor market proved less drastic than anticipated.  The four-week moving average of claims increased to 268,750, albeit remained well below the 300,000-threshold associated with a healthy labor market.  Also included in the Labor Department’s report, the number of continuing claims for the week ended September 9^th rose by 44,000 to 1.980 million, marking 23 consecutive weeks of sub-2 million continuing claims, as the labor market slack continues to diminish.

 

 

Internationally, the Bank of Japan concluded its policy meeting today with the decision to hold interest rates steady at -0.1%, maintain its target of a 0% yield on 10-year bonds and continue asset purchases of 80-trillion yen ($711 billion) per year.  The decision to leave its monetary policy unchanged was widely expected, however it came as a surprise that newest member of the BOJ, Goushi Kataoka, dissented in favor of increased stimulus, citing the need for more accommodation in order to reach the central bank’s 2% inflation goal by 2020.  The most recent reading of Japan’s core inflation displayed a tepid 0.5% YoY increase, although the BOJ characterized its economy as “expanding moderately”, helped by the unemployment rate sitting near its lowest levels in 20 years.