Stocks, Treasurys Gap Lower After Hawkish Fed Minutes

 

This afternoon US financial markets experienced a bit of volatility following the release of the minutes from the FOMC’s January policy meeting.  Specified in the text was the view amongst Fed officials that growth in the US economy is poised to accelerate faster than projected at the prior meeting in December, citing the “effects of recently enacted tax changes—while still uncertain—might be somewhat larger in the near term than previously thought.”  Related to inflation, FOMC members maintained a cautiously optimistic outlook when looking at the potential to reach and sustain the Fed’s 2% target.  In the labor market, officials’ predicted that “conditions would strengthen further” and “the continued tightening in labor markets was likely to translate into faster wage increases at some point.”  Additionally, market pundits will need to consider the larger-than-expected government spending bill that was approved after the January meeting and stands to provide a further boost to the economy.

 

 

US Treasury prices gapped lower following the release of the minutes, as the hawkish text seemed to present a stronger probability of four rate hikes in 2018 than previously envisioned.  Yields/swap rates increased 2-8 bps across the curve, with the 10-year note yield closing at a 4-year high of 2.95%, up 6bps on the day.  Major stock indices traded higher for the bulk of the session before paring gains in the afternoon and finishing the day 0.2%-0.7% lower.  The US dollar rose for a forth consecutive session, gaining 0.4% against major currencies.  In commodities, WTI crude edged 0.3% lower while gold futures were largely unchanged.

 

 

Housing Market Tightens Further

The combination of rising real estate prices and limited supply continues to make home ownership in the US a much more difficult proposition for prospective buyers.  Existing home sales in January totaled a seasonally adjusted annual rate of 5.38 million, missing expectations of 5.60 million and falling 3.2% from the prior month’s revised level.  Compared to a year earlier, sales of previously owned homes were down 4.8%, the sharpest annual drop since August 2014.   Median sale prices increased 5.8% YoY in January to $240,500.  There were 1.52 million homes in inventory last month according to the report (near lowest since such records began being kept in 1999), corresponding with a 3.4-month supply of homes on the market based on the current sales pace.