Meetings, Minutes, and Manufacturing

Counting the minutes

FOMC meeting minutes are issued three weeks after each meeting and help inform the market of the Fed’s thoughts on monetary policy changes (or lack thereof). The last Fed meeting indicated a big shift from further interest rate hikes to a pause on interest rate hikes, so the market has been waiting to fully understand the Fed’s thought process behind this more dovish outlook. The meeting minutes were generally optimistic due to the strengthening labor market and solid GDP while the key area of concern (appropriately so) was slowing global growth. 

Moral of the story: The FOMC members seem to be in agreement about approaching future interest rate decisions with patience but there was some debate on what to do with the balance sheet, which might give way to conversations about the end of tightening monetary policy coming sooner than later. None of this provided a surprise to the market as stocks didn’t react much to the meeting minutes, but steps toward the end of the balance sheet run-off could bolster the market. 

Phalling Philly Phed Index

The Philadelphia Fed publishes a business outlook survey that’s generally followed as an indicator of manufacturing sector trends. The index, joining other surveys that have started showing weakness, came in at -4.1 for the month of February, contracting for the first time since May 2016. While the six-month outlook still seems intact, current sentiment and the pace of new orders and shipments don’t really make me feel warm and fuzzy. This read matches the durable goods report from this week which showed capital goods orders (this tracks business investment) fell sharply for the second straight month. 

Moral of the story: The manufacturing sector is generally regarded as leading economic indicator and both these reports seem to be pointing in the wrong direction. 

DC happenings

High-level meetings occurred this week in Washington between US and Chinese negotiators on a trade agreement. The talks seemed to be going so well, in fact, that they’ve been extended by two days to build on the progress that’s been made so far. Depending on the progress, President Trump has even expressed willingness to extend the March 1 deadline on additional tariffs, so in general things are looking up on the trade front. Not to go unnoticed, however, House Democrats are moving to block Trump’s declaration of a national emergency to build a border wall. While the House seems to have the votes required to pass the bill, the numbers aren’t as clear for the Senate and Trump has the ability to veto the bill, after which it would require a 2/3 majority to pass through the House and the Senate, which seems unlikely.

Moral of the story: Between the government shutdown and trade negotiations, there has been a lot of uncertainty from the White House but we’re slowly seeing these issues resolved and a successful trade deal out of DC would definitely boost the market that’s been operating in a fog of uncertainty lately.