Daily Market Color

Treasurys Rally, Stocks Fade After FOMC Minutes, Despite Robust Private Payrolls

Today’s much-anticipated release of the FOMC’s March meeting minutes provided financial markets with further color surrounding the Fed’s plan for the unwinding of its $4.5 trillion balance sheet.  The minutes detailed the majority view that “a change to the committee’s reinvestment policy would likely be appropriate later this year,” and “should be conducted in a passive and predictable manner.”  Remaining to be outlined is the pace for the shrinking of the balance sheet, which will require further analysis related to market impact and transparency.  Also recorded in the minutes was the continued agreement for gradual interest rate hikes, confirming the current projection for two additional increases in 2017.  The committee was split in its views over inflation, with some concerned about the risk of the economy overheating while others believed that advances in consumer prices will require further acceleration before raising any red flags.  Following the report, US equities pared gains from earlier in the session, while Treasurys rallied across the curve.  All three major stock indices are currently trading 0.05%-0.40% lower, and yields/swap rates are down 2-6 bps across major maturities.   

Economic data published today included ADP’s employment report, which displayed the largest increase in monthly private payrolls since December 2014.  The number of new hires by private employers in the US totaled 263,000 in March, surpassing February’s robust 245,000 revised level and well above expectations of 185,000.  Broken down by sector, goods-producing industries added 82,000 jobs while 181,000 jobs were added by service-providing firms.  Often an indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows a positive level for Friday’s nonfarm payrolls, which is currently expected to display a 175,000-monthly increase.

Presenting a less favorable indication for nonfarm payrolls was the Institute for Supply Management’s non-manufacturing index, which presented a larger than expected monthly decline to 55.2.  March’s reading was 2.5 points less than February’s 1.5-year high level, as sharp decreases in business activity and services employment weighed down the survey.  Overall expansion among service companies was the slowest pace in the past five months, with a decrease in consumer spending pointed to as the likely cause.

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