Daily Market Color

Treasurys Decline on Yellen Comments, Reduced Geopolitical Tensions

Hawkish Yellen Downplays Inflation Woes – During a speech today in Cleveland, Fed Chair Janet Yellen doubled down on her comments from earlier this year in which she referred to the existing low inflation levels as “transitory” and maintained that it “would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.”  Yellen stated her preference to continue with the plan for gradual rate hikes, citing the “risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession.” She did provide the caveat that the Fed “may have misjudged the strength of the labor market”, and low wage growth could persist as a result of weak productivity growth.  The probability of a December rate hike shifted from 63% to 70% following Yellen’s speech, as per Fed Fund futures.



US Treasurys experienced a modest selloff following Yellen’s comments, and yields/swap rates are currently up 1-3 bps across the curve.  The dollar gained 0.3% against major currencies, highlighted by a five week high against the euro at $1.18/EUR.  All three major US stock indices fluctuated throughout the day before ultimately finishing near unchanged, stemming yesterday’s North Korean induced declines as White House representatives confirmed that the US did not make any declarations of war against Pyongyang.  Gold futures also fell with the easing of geopolitical tensions, down over 1% on the day to $1,295/ounce.  


GOP Healthcare Reform Officially Taken Off Life Support

Senate Republicans have thrown in the towel on a last-ditch effort to pass a bill that would repeal and replace the ACA via a simple majority.  Republican Senator Susan Collins seemingly put the final nail in the coffin yesterday evening when she announced her intention to vote against the proposed Graham-Cassidy bill, representing the decisive third GOP Senate member to oppose the measure.  The main complaint from Senate members opposed to the bill was its substantial cut to Medicaid funding, which would effectively end insurance for millions of low-income Americans.  The Republican Party will be forced to suspend its quest for a repeal of Obamacare for the time being and will shift its focus to tax reform.

Housing Market Continues Summer Slowdown

New home sales displayed a slowdown in the month of August, as the impacts of Hurricanes Harvey and Irma added to the low levels of inventories that continue to drive prices higher and temper the housing market.  As reported by the Commerce Department, there was a 3.4% decline in the number of new homes sold last month, yielding a seasonally adjusted rate of 560,000 units — an eight-month low.  The August figure fell below expectations of 585,000, and was 20,000 below the prior month’s upwardly revised pace.  New homes sales were down 1.2% YoY.  Purchases were down in three of the four US regions, with the Midwest remaining unchanged for the month.  New homes available on the market increased slightly in August to 284,000 units, and the outstanding inventory equated to a 6.1-month supply.


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