Daily Market Color

Treasurys Rally Amid China Trade Woes While FOMC Minutes Boost Equities

 

FOMC Releases Minutes

In the minutes of the FOMC’s May 1-2 meeting released today, a number of participants saw recent economic data had confirmed their economic outlook and approach to rate hikes.  While the consensus strategy was to continue the current gradual pace of raising rates, the minutes seemed to all but confirm that the Fed will raise rates another quarter point at their upcoming June meeting.  Inflation recently achieved the 2% target set by the fed, and while a welcome milestone the Fed remains mindful of the longer term expectations for price growth.  “It was noted that it was premature to conclude that inflation would remain at levels around 2 percent, especially after several years in which inflation had persistently run below the committee’s 2 percent objective,” per the release.  The members did discuss the flat nature of the yield curve with some noting that an inverted yield curve has been historically and precursor to recession, while other members view the shape of the yield curve as a less robust indicator of future activity.

 

 

Minutes Boost Equities

Equity markets rallied today after the release of the minutes form the most recent meeting of the FOMC.  The NASDAQ led the way today with a 0.64% gain, +0.32% for the S&P 500 and a DJIA gain of 0.31%.  US Treasurys rallied today on the new that the exuberance over a potential trade deal with China may have been overblown, as yields/swap rates were down 5-7bp across the curve.  The 10-year note yield didn’t hold above its 3% level (down 6.5 bps) closing at a yield of 2.99%.  The US Dollar was up 0.6% against both the Euro (EUR) and the Pound (GBP). Crude oil futures fell today, closing at $71.76/barrel – down 0.5% on surprise growth in US stockpiles. 

 

 

Dodd-Frank Rollback Moves Closer to Done Deal

Yesterday afternoon the House of Representatives voted 258-159 in favor of the Economic Growth, Regulatory Relief and Consumer Protection Act, a bill which will effectively roll back a portion of the Dodd-Frank banking regulations instated after the financial crisis of 2008.  With the measure previously approved by members of the Senate back in March, it will now make its way to President Trump’s desk, where he has already announced his intention to sign the bill into law. 
 
Highlights of the bill include:

  • Increase of the SIFI (Systematically Important Financial Institution) threshold to $250 billion from $50 billion.  A SIFI is subject to more strenuous stress testing and stringent, and this measure reduces the number of SIFI banks
  • Raises the threshold where banks are subject to the Volcker Rule to $10 billion

Exempts mortgage lenders who make 500 or fewer loans a year from the expanded data collection, meant to identify discrimination in the home loan market.  

 

 

Pullback in Purchases of New Homes

New home sales for April highlighted today’s key economic data releases, where a 1.5% MoM decrease to a seasonally adjusted 662,000 pace was reported, alongside downward revisions to the prior two months (-30,000).  The April figure fell below median forecasts of a 680,000 rate, as purchases in the West declined 7.9% and outweighed rises in the Northeast (+11.1%) and South (+0.3%).  New homes available on the market held steady at 300,000 in April (near 9-year high), and the outstanding inventory climbed to a 5.4-month supply.  Also detailed in the data, the median new home sales price declined a sharp 6.9% in the month to $312,400 (+0.4% compared to a year earlier).