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Mildly Dovish Fed Minutes Don't Spark Major Market Reaction


Today's financial recap and tomorrow's financial outlook.

Global risk assets were mostly lower heading into the release of the FOMC minutes. Gold was lower, the US dollar was higher, and US Treasuries and equities were lower. Some of that was due to movements in Japan and Europe overnight from various central bankers that caused the Yen and German Bunds to fall.

The minutes of the Fed October meeting were slightly dovish compared to a mildly hawkish statement. The Fed said that it was concerned global growth could affect the US moving forward, especially in terms of inflation, but did not think it would have a large overall effect. Additionally, it did not alter the "considerable time" language in its statement because it did not want to cause an unintended tightening of financial conditions. The minutes emphasized again that the Fed is data dependent in determining the correct time to normalize policy.

Markets generally reacted in a positive manner following the release of the minutes at 2:00pm ET, but that sentiment was reversed about 30 minutes later. The S&P 500 (SPX) finished down by 0.15% with the largest declines in telecom and tech. Natural gas posted large gains with the January future rising by 3.6%, which helped boost the performance of some energy stocks. The sector was the best performer today amongst all equities.

Gold fell by 1.31% in today's trading. Two new polls from Switzerland on the likely results of the Gold referendum vote. The vote will determine whether or not the Swiss National Bank (SNB) has to hold 20% of its reserves in gold and all of that must be held within Switzerland. New polls suggested that there were more than two times as many voters who planned to vote "No" rather than those who will vote "Yes" the third such poll in the past two weeks. That is a negative for the price of gold.

Tomorrow's Financial Outlook

The main event tomorrow for global markets is the release of the October US consumer price index. Tuesday's producer price index showed no inflationary pressure at the core. If the consumer side of the equation does not corroborates that even though gasoline prices were lower during the month then risk assets stand to benefit and Treasury yields should shoot higher. Also scheduled to be released is the preliminary Markit manufacturing PMI for November, weekly jobless claims, and October existing home sales.

Also of significance is the various manufacturing PMI's due out around the world overnight. Of note is the manufacturing PMI from China and Japan late tonight with the former carrying the potential for a much larger market reaction. The index is expected to continue to moderate down to 50.2 from 50.4 in the month prior. Early tomorrow morning the various Eurozone manufacturing PMI's will be released. Because recent German sentiment surveys have shown strong jumps, if the PMI's do not reflect that same optimism then there should be a negative reaction in risk assets tomorrow.

Notable earnings reports for tomorrow include Dollar Tree (DLTR), Best Buy (BBY), Gap (GPS), Ross Stores (ROST), Autodesk (ADSK), Gamestop (GME), Splunk (SPLK).

Twitter: @Minyanville

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No positions in stocks mentioned.

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