Market Update: Thursday, May 19, 2016

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  • Markets lower as Fed minutes remain in focus. Stocks are slightly lower in early trading, weighed down by minutes from the April Federal Open Market Committee (FOMC) meeting that suggested a June rate hike was far more likely than the market had been anticipating. The release caused broad outperformance of the financial sector on Wednesday, which finished up 1.9%, despite seven of the 10 sectors closing down on the day. The dollar is moving higher again, after a strong session yesterday, while COMEX gold and WTI crude oil are both moving lower. Global stocks showed caution in response to the Federal Reserve Bank’s notes as Asian equities ended mixed, and in afternoon trading European markets are down. Finally, Treasuries continued to be hurt as the yield on the 10-year is moving higher after yesterday’s 0.07% jump to 1.85%.

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  • New claims for unemployment fell 16,000 to 278,000 in the week ending May 14, as distortions from the Verizon strike and late spring break in NYC fade. With the calendar turning from April to May, we thought the distortions to the weekly claims data caused by the shift in Easter and/or spring break in most of the country between 2015 and 2016 were over. But spring break in the New York City school system was very late this year. In addition, the strike at Verizon may have pushed claims higher temporarily in late April and early May. Looking through the distortions, claims remain near historically low levels and are close to the lows seen last summer and fall, which were the lowest in 42 years (1973). Claims are up 3,000 from their level 26 weeks ago. In the past, claims need to rise more than 75,000 over a six-month (26-week) period to indicate a recession, so clearly there is no recession signal from claims. The level of claims continues to point to a solid labor market, but we will continue to watch them closely.
  • FOMC minutes put June hike back on the table. The minutes of the April 26-27 FOMC meeting were released yesterday and revealed that most FOMC members thought a June hike was feasible if the data continued to track to the FOMC forecast. Just after the FOMC meeting in April, the Fed funds futures market put the odds of a Fed hike at the June meeting at one in three. Late last week, after a run of weaker U.S. economic data, the odds of a June hike were near zero. Today, the fed funds futures market puts the odds at one in three. In recent days, several FOMC members have been publicly reminding markets that June is a viable option and the release of the minutes yesterday was yet another reminder from the Fed to the markets that June is a live meeting.
  • China property prices continue to boom. The Chinese government provided data on the property markets earlier this week. We use the term “markets” deliberately, as the information can vary greatly from major “Tier One” citizens to smaller ones. Prices of newly constructed homes were up in 46 of 70 major cities. Prices are up 4.2% year over year, but are up 31.5% in the tier one cities. Some of this price increase is due to increased demand for more luxury properties. Real estate is a much more significant store of wealth for rich Chinese citizens, who do not trust the volatility of the stock market.
  • Historic Day? For equity markets closing flat yesterday, if all you saw was the final numbers you’d never know how volatile things were after the Fed Minutes. In fact, the Dow was up 100 points at its peak and down 100 points at its low, yet finished flat. Looking at the entire history of the Dow, that event has only happened one other time; October 1999.
  • What is the yield curve saying? The yield curve, which shows the interest rate for Treasuries with different maturities and can be used to gauge economic growth, is all over the news, as it was recently at its flattest level since late 2007. What does this mean and should you worry? Today on the Macro Market Movers blog we will dive further into this development and discuss what you need to know.

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Thursday

Friday

  • Existing Home Sales (Apr)

Sunday

  • Japan: Imports and Exports (Apr)

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