Morning Report: The Fed begins to catch up with the markets

Posted on April 11, 2019 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2898.25 3.5
Eurostoxx index 387.47 0.4
Oil (WTI) 64.02 -0.59
10 year government bond yield 2.49%
30 year fixed rate mortgage 4.14%

 

Stocks are higher after the UK and the EU agreed to kick the can down the road on Brexit. Bonds and MBS are flat.

 

The FOMC minutes didn’t reveal much new information. They did move closer to what the markets have been saying all along: that the Fed is done with rate hikes: “A majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year.” That said, the Fed Funds futures are handicapping a more than 50% chance for a rate cut this year, so there still is a disconnect. The FOMC also seemed eager to end the balance sheet reduction exercise, concerned that allowing it to fall further risks pushing up the overnight borrowing rate by creating a reserves shortage.

 

The CEOs of the biggest banks appeared before the House yesterday and it was basically a political posturing event. Democrats complained about diversity, deregualation and student loans. Republicans talked about Brexit and politically targeting industries by cutting them off (firearms). Aside from creating clips for donor emails, the whole dog and pony show was contained nothing of use for investors and professionals.

 

The Producer Price index increased 0.3% in March, which is up 2.9% YOY. Declining energy prices were offset by increasing final demand inflation.

 

Initial Jobless Claims were again below 200,000, falling to 196,000. These are extraordinary numbers, the like we haven’t seen in half a century.

 

 

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