Fed Minutes – PMIs eyed

US Stocks took another hit on Wednesday, with the Dow Jones performing the best among the major equity indices, remaining unchanged for the day. The S&P 500, despite falling as low as 6,343, closed the day down by just 0.2% at 6,395; the Nasdaq 100 mirrored a similar pattern, recovering most of its earlier losses but dropping 0.6%. Seven out of the eleven sectors concluded in positive territory. At the same time, the remaining four – consumer discretionary, technology, communication services, and industrials – which house the more heavily-weighted sectors from the Magnificent Seven, experienced a setback.

Equity index futures for both Europe and the US are pretty much steady this morning; there is not a lot going on out there as traders wait for the next catalyst. In the FX space, the US dollar (USD) was largely muted in recent trading, with a similar picture for the euro (EUR).

US Treasury yields were modestly lower across the curve yesterday, extending Tuesday’s fall. Meanwhile, commodities caught a bid yesterday, with Spot Gold (XAU/USD) and Silver (XAG/USD), as well as WTI Oil (West Texas Intermediate), rallying 1.0%, 1.4%, and 1.4%, respectively. 

Fed Minutes: Inflation risks outweigh employment risks

Yesterday saw the release of the minutes from the US Federal Reserve (Fed) meeting between 29 and 30 July, which had the central bank remain on hold for a fifth consecutive meeting at 4.25% - 4.50%. The minutes showed that Fed officials saw inflation risks outweigh employment risks, which was understandable at the time of the meeting as it was two days before the US July payrolls report that exhibited some very chunky downside revisions.

So, despite markets pricing in two rate cuts this year, kicking off with a 25 basis-point (bp) reduction next month, the minutes show that most of the members are not in a hurry to begin easing policy and are playing it cautiously.

However, the question is that after the meeting and the initial drafting of the minutes, which, as I understand it, are written up immediately following the Fed decision, the minutes could be seen as relatively outdated, especially considering the jobs report. I mean, could you not simply stop reading after page 3, where it states: ‘Recent data indicated that labor market conditions remained solid?’

Additional takeaways from the minutes were that Fed officials noted that tariff risks could take time to show their full effect, and growing concerns about high asset valuations.

Fed Chairman Jerome Powell was also back on US President Donald Trump’s social media radar, with Trump noting that there is ‘no inflation’ and that Powell is ‘hurting the housing industry’. Fed Governor Lisa Cook was also in Trump’s firing line over allegations of mortgage fraud, to which she has responded by saying that she will not be bullied into stepping down. It will be interesting to see what happens with this!

What’s ahead?

Traders are now looking ahead to the August S&P Global PMIs (Purchasing Managers’ Indexes) for the eurozone, the UK, and the US; the FP Markets Research Team will be covering these once they land. French and German PMIs will be out of the gate at 7:15 am and 7:30 am GMT.

Along with the PMI numbers, markets will be watching US weekly jobless filings for the week ending 16 August, and, of course, the Jackson Hole Symposium will open its doors today.

While Jackson Hole kicks off today, the majority of the spotlight falls squarely on Powell who is expected to take the stage at 2:00 pm GMT on Friday. The question remains whether the Fed Chief endorses policy easing or chooses to remain on the sidelines. Investors are assigning an 80% chance that the Fed will reduce the target rate by 25 bps.