US MARKET WRAP – Fed minutes show officials cautious on inflation while Trump shuts down business councils

THE USD fell on Wednesday as the FOMC minutes showed some on the Fed were concerned about the slowdown in inflation and they agreed to monitor prices closely. This suggested that some are happy to wait until they say a pick up in inflation before hiking rates again. Nevertheless, they still seemed content to start trimming the balance sheet in September, with some even wanting an announcement as early as the July meeting, although the Committee was definitely split on this matter. The fall out from Trump’s response to the Charlottesville riot is also continuing to hurt the USD as Trump shut down two business councils after a raft of CEOs decided to quit.

US Treasuries rallied after the minutes with the 10y yield declining over 5bps. The comments on inflation led most to believe that interest hikes can be paused, although late comments from Fed’s Mester, one of the most hawkish members, suggested that it would be premature to delay rate hikes. Sep’17 10y T-notes settled at 126.16+, up 11+ ticks.

US equities finished marginally higher although the energy sector and financials underperformed. Energy companies declined as oil tumbled following the DoE inventory data which showed production increased to over 9.5mln bpd and builds in inventories at the Cushing hub. Furthermore, unexpected builds in gasoline and distillate stocks also weighed on prices. Financials underperformed on lower rates following the Fed’s minutes. Materials outperformed as metals prices rallied, with zinc breaking above USD 3000 and touching a decade high. Urban Outfitters was the best performing stock in the S&P 500 after positive earnings after hours on Tuesday. The S&P 500 closed up 0.1% at 2468.11, the Dow finished up 0.1% at 22024.87, and the NASDAQ 100 finished up 0.2% at 5917.42.

16 Aug 2017 - 21:11- Fixed IncomeEconomic Commentary- Source: RANsquawk

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