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While you were sleeping: Treasuries rally as Fed’s in no rush

Thursday 24th May 2018

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US Treasuries climbed while Wall Street was mixed, giving up some of its earlier declines, as Federal Reserve policy makers signalled the pace of interest rate hikes is unlikely to accelerate soon. 

Minutes from the Federal Open Market Committee’s May meeting, released on Wednesday, underpinned bets that policy makers will hike at the June meeting but also eased concern they are planning more than the three increases they have flagged for this calendar year. Consensus is split between two or three additional rate hikes this year. 

"Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate for the Committee to take another step in removing policy accommodation," the minutes showed.

Even so, "a temporary period of inflation modestly above 2 percent would be consistent with the Committee's symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective,” according to the minutes.

US Treasuries rallied, sending yields on the 10-year note six basis points lower to 3 percent.

“There seems to be more caution with rate hikes going forward,” said James Hickey, chief investment strategist at HD Vest, Bloomberg reported. “The wording of that was not one which is expected continued increases, it was they’re happy with status quo.”

In 3.17pm trading in New York, the Dow Jones Industrial Average inched 0.03 percent lower. However, the Nasdaq Composite Index gained 0.2 percent. In 3.02pm trading, the Standard & Poor’s 500 Index rose 0.2 percent.

“The market is probably breathing a little bit of a sigh of relief knowing that inflation even a bit above two percent may not necessarily mean a faster rate of increases,” said Mike Baele, managing director at US Bank Private Client Wealth Management in Portland, Oregon, Reuters reported.

The Dow was mixed as slides in shares of General Electric and those of American Express, recently down 7.4 percent and 0.2 percent respectively, offset advances in shares of Boeing and those of Merck, recently up 1.2 percent and 1.1 percent respectively. 

Shares of General Electric slumped amid concern about Chief Executive Officer John Flannery’s comments about the outlook for its power business. 

“This is not going to be a quick fix,” Flannery told the Electric Products Group conference, according to the Wall Street Journal. 

GE predicts a “flat” profit for its power unit this year. 

In Europe, the Stoxx 600 Index dropped 1.1 percent following a report showing business activity in the eurozone eased more than anticipated in May, with Markit’s flash composite PMI dropping to the lowest level in 18 months. 

While the May reading was disappointing, "for the euro-zone as a whole, the composite measure is consistent with the quarterly growth rate remaining around 0.4 percent," Andrew Kenningham, chief global economist at Global Economics, said in a note. "It does not point to a collapse."

The UK’s FTSE 100 Index slid 1.1 percent, while France’s CAC 40 Index declined 1.3 percent, and Germany’s DAX Index fell 1.5 percent.


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