Morning Report: FOMC minutes a nonevent 1/7/16

Markets are lower again after Chinese markets got slammed down 7% overnight. Bonds and MBS are up small.

Chinese shares fell 7% in the first 30 minutes of trading and the authorities suspended trading for the rest of the day. FWIW, George Soros is comparing what is going on in China with 2008. That probably isn’t far off, given they have a real estate bubble which seems to be bursting as well.

North Korea claimed to have detonated a hydrogen bomb, but the US has so far found no evidence they actually did.

In spite of all the volatility in the markets, we aren’t really seeing much of a bid under Treasuries, or the dollar for that matter. No big flight to safety trade. The market seems to be taking the view that any problems in China will remain contained and won’t affect the Fed’s policy of normalization. Remember, the Fed was going to hike rates in September and chose not to after the late summer sell-off, so overseas markets do matter to them.

The FOMC minutes were generally upbeat yesterday, with the Fed noting the continued improvement in the labor markets, nascent wage inflation, and strong consumer spending, especially autos. Worries included the stress in the high yield markets and weakness in overseas markets. The members are still divided over how much slack remains in the labor markets, and for some the decision to raise rates was a “close call.”  Bonds didn’t react to the release, although they were strong on the day to begin with.

Initial Jobless Claims fell to 277k from 287k the week before. Announced job cuts fell 28% according to outplacement firm Challenger, Gray and Christmas.

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