Ok so it’s Thursday morning and everyone has generally come around to what I said moments after the Fed Minutes were released on Wednesday: they were, if anything, dovish. Or, as Bloomberg amusingly put it this morning, “net dovish.”
Yes, “net dovish,” which is precisely how the market moved despite the protestations of those determined to hang onto the hawkish narrative that everyone had been pushing since Yellen’s Valentine’s Day testimony on Capitol Hill.
As noted, the disappointing average hourly earnings print we got with the January jobs number shifted the narrative dovish, but the story changed abruptly following Yellen’s comments to the Senate Banking Committee. Less than 24 hours after that testimony we got a blockbuster CPI print. In the days that followed everyone interpreted everything they heard from Fed speakers as hawkish and so, going into yesterday’s Minutes, there was perceptible bias.
For some perspective, here’s Barclays take:
The minutes from the January FOMC meeting provided little new information. We think the Fed is unlikely to hike in March, but is eager to raise rates three times this year, partly in expectation of fiscal stimulus. We forecast only two hikes, in September and December, reflecting the growth-cooling effect of tariffs. However, if the administration does not pursue tariffs, the unmitigated effect of stimulus and progress on the dual mandate would lead the FOMC to hike in May or June, in our view
And here’s SocGen:
Fed flags interest rate rise ‘fairly soon’ is the FT’s line. Fed Minutes: Officials see rate increases ‘fairly soon’ is the Wall Street Journal’s take. The market’s reaction is to edge the probability of a May hike up a bit and the probability of a March hike down a bit, while ‘Mr Market’ is pretty convinced we’ll have had a rate rise by mid-year. The general sense is that if the fed really wanted to open the door to a March hike, they would have worked harder to get the possibility priced into the front end of the Treasury curve.
In any event the “downside risk from a strong dollar” line that caused the broad dollar and USDJPY to slump on Thursday afternoon was at least partially offset by Treasury Secretary Steve Mnuchin, who appeared to walk back some of the new administration’s weak dollar rhetoric in an interview with WSJ.
Here are the relevant excerpts:
But Mr. Mnuchin avoided taking confrontational positions on the dollar. He said the strong U.S. dollar is a reflection of confidence in the U.S. economy and its performance compared with the rest of the world and was a “good thing” in the long run. The comments echoed remarks Mr. Mnuchin made in a confirmation hearing last month.
The dollar has appreciated by 23% over the past three years and added to those gains since the November election.
“I think the strength of the dollar has a lot to do with kind of where our economy is relative to the rest of the world, and that the dollar continues to be the leading currency in the world, the leading reserve currency and a reflection of the confidence that people have in the U.S. economy,” Mr. Mnuchin said.
Here’s a visual to give you an idea of how this played out:
Mnuchin is speaking on CNBC as I write these lines. He’s moving markets, but we’ll see how it plays out.
So that’s that.
Moving on, crude got a lift from Wednesday’s API print, which showed stockpiles falling (for a change). That’s got the market wondering what today’s EIA data will show. Here are the API numbers in case you missed them:
- Crude inventories fell 884k bbl last week
- Cushing -1.73m bbl
- Gasoline -893k
- Distillates -4.23m
- Cushing draw would be largest since April when compared with EIA data
It will be interesting to see how whatever algo that’s been furiously buying the dip following the EIA data reacts on Thursday morning.
In Asia, markets were mostly lower as the dollar’s post-Minutes slump gave the yen a bid. Japan held a 20-year auction that drew the highest bid-to-cover in more than 3 years. 20-year yields fell 3 bps to 0.655%, while 30- year yields dropped 4.5 bps to 0.850%. “Markets are relieved about the possible clearing up of uncertainty over the BOJ’s operations, and that may have encouraged buying,” Mari Iwashita, chief market economist at SMBC Friend Securities in Tokyo told Bloomberg.
- Nikkei down 0.04% to 19,371.46
- Topix down 0.05% to 1,556.25
- Hang Seng Index down 0.4% to 24,114.86
- Shanghai Composite down 0.3% to 3,251.38
- Sensex little changed at 28,862.89
- Australia S&P/ASX 200 down 0.4% to 5,784.66
- Kospi up 0.05% to 2,107.63
In Europe we got German GDP, which came in line with preliminary estimates while GfK consumer confidence printed at its lowest level in four months.
In the US we’ll get jobless claims and the rest of the usual Thursday econ prints. And of course they’ll be Fed speakers. Here’s the full docket:
- 8:30am: Chicago Fed Nat Activity Index, est. 0, prior 0.1
- 8:30am: Initial Jobless Claims, est. 240,000, prior 239,000
- 8:30am: Continuing Claims, est. 2.07m, prior 2.08m
- 9am: House Price Purchase Index QoQ, prior 1.51%
- 9am: FHFA House Price Index MoM, est. 0.5%, prior 0.5%
- 9:45am: Bloomberg Consumer Comfort, prior 48.1
- 11am: Kansas City Fed Manf. Activity, est. 9, prior 9
- 8:35am: Fed’s Lockhart to Speak on His 10-Year Tenure at the Fed
- 1pm: Fed’s Kaplan Speaks in Fort Worth
Futs are up slightly.