Wednesday February 18: Markets Respond Positively to Fed Minutes Following Weak Data

S&P500 stays flat following Fed minutes as energy stocks fall. S&P closes at 2,099 reversing earlier losses and DJIA closes down .1% to 18,029. Several U.S. economic data reports today missed estimates, including factory production, housing starts, and wholesale prices.

Fed minutes reflect that the FOMC is still very cautious about raising rates. Although inflation is expected to reach 2%, the exact timing of when to raise rates is unclear. The minutes show that several Fed officials are fearful of the negative effects that would result from a premature rise, and they are unsure whether or not to drop the word “patient” from their forward guidance. Many FOMC participants are willing to keep rates lower for a longer period of time. The minutes cite strong dollar, Greece and Ukraine uncertainty, and slow wage growth as weaking the case for the first rate rise. However considering that these minutes were recorded before the most recent labor report, it’s unlikely that slow wage growth is still a chief risk. As a result of these relatively dovish developments, yields fall and the dollar depreciates after the announcement (but was still up slightly on the day). However the VIX falls to 15.45 as treasury yields fall to 2.08 and .60% for the 10 and 2 year respectively.

Tomorrow Greece will request to extend its current rescue program, however Eurozone officials are skeptical and may not accept Greece’s proposal as it may be too similar to previously rejected proposals. German officials will not accept any request that doesn’t adhere to completion of the current bailout terms. If Greece’s requests are rejected, Greece will run out of emergency funding from the EU after next week, and the country will run out of cash in a very short period of time. Greek markets reflect optimism as equities rally 1.1% and the 3 year falls 114bp.

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Wednesday February 18: Markets Respond Positively to Fed Minutes Following Weak Data

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