Daily Market Color

Treasurys Rise as FOMC Meeting Minutes Display Inflation Uncertainty

The much anticipated release of the minutes from the FOMC’s July policy meeting revealed a divided Fed on the topic of inflation.  While much of the Committee foresaw consumer prices eventually rising to their 2 percent target in the medium term, several members agreed that there exists “some likelihood that inflation might remain below 2 percent for longer than they currently expected” and “indicated that the risks to the inflation outlook could be tilted to the downside.”  With that in mind, a few participants argued to delay further Fed rate hikes until it could be determined that the weakness in inflation was indeed “transitory.”  


The minutes also focused on the timing for the unwinding of the Federal Reserve’s $4.5 trillion balance sheet.  Some Fed members “were prepared to announce a starting date for the program at the current meeting,” the text stated, although the majority agreed to push the decision until a later date.  Current expectations point to the Fed to officially declaring the start date for its balance sheet normalization at its next policy meeting, which is scheduled for September 19th-20th.         



The Commerce Department’s report on US homebuilding headlined a light day of economic data reporting.  Housing starts during the month of July unexpectedly fell to a seasonally adjusted rate of 1.155 million units, representing a 4.8% decline from the prior month’s revised level.  Much of the weakness was attributed to the multi-family component, which recorded its lowest reading in ten months at a seasonally-adjusted rate of 299,000.  The multi-family figure was more than 15% lower than June’s pace and 34% less than its level a year earlier.  Single-family starts held relatively steady at a 856,000 rate and are up 11% YoY.  Also detailed in the report, building permits declined 4.1% last month, again led lower by a significant decrease in the multi-family segment (-11.2%).



US Treasurys climbed from the beginning of the trading session, reversing the majority of yesterday’s selloff as political drama continues to build in the White House.  Further doubt was cast on President Trump’s ability to implement his pro-growth policies as he disbanded two of his business advisory councils following the resignation of a number of corporate executives who disagreed with the President’s reaction to the events in Virginia last weekend.  Treasury yields/swap rates are currently down 2-5 bps across the curve with the 10-year note yield approaching 2.22%.  The US dollar also reversed yesterday’s movement, falling 0.4% on the day against major currencies.  All three major US stock indices edged 0.1%-0.2% higher for the session.  In energy markets, WTI crude oil declined 1.6% to a three-week low of $46.80/barrel on concerns over rising production in the US.  


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