Financials –
The FOMC minutes were released yesterday afternoon and they reinforced the overall dovish lean of the Fed despite recent commentary from Chair Yellen & Co. Immediately following the release the dollar weakened and gold bounced. Generally speaking most of the comments were everything you’d expect, the typical “rate hike fairly soon” sort of thing. However, there were a few headlines that stood out to me. One was “Fed officials saw downside risks from further dollar strength.” This is the first time in a while we’ve heard the Fed make note of the recent dollar strength and it is interesting to see it come up as the debate over an increased pace of rate hikes picks up. In the past we’ve seen the Fed delay rate hikes due to concerns overseas, and that is essentially what they’re hinting towards here as well. I think this is very interesting. They also mentioned “downside risk from some potential policies,” a clear nod to “uncertainty” surrounding the new administration.
This does not sound like a FOMC that is keen to raise rates in March, though I should point out that Fed Governor Powell did say yesterday a March rate hike is “on the table.” Of course they’d all tell you all meetings are “on the table,” which we know by now to be a lie. Rate hike odds have dipped since the FOMC statement release, but they weren’t high to begin with at only 38% before the release. June still looks to be your best bet, but who knows what will happen by then?
Along those lines, markets were clearly influenced by European politics yesterday as the euro bounced mid-morning after it was announced a French presidential candidate was withdrawing and putting his support behind Macron. This lessens the chances of a Le Pen victory in a runoff and French OATS and the euro both rallied in response while gold sold off. This makes it very clear we are definitely trading political headlines in Europe right now. I guess we should stop picking on our friends who majored in political science now.
New Treasury Sec Mnuchin is giving an interview on CNBC this morning at the time of writing. Among interesting comments he said the “most important thing for growth is the tax plan” and he said “tax reform to be significant.” He said the goal for tax reform is before the August Congressional recess. He said they’re looking very closely at a border adjustment tax. And he interestingly said we will likely have low rates for a “long period” but of course declined to comment on what course of action the Fed might take.
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