Policy Rate Unchanged
Prior Week Summary
As was widely anticipated, the FOMC kept the policy rate unchanged at a range of 2.0% to 2.25%. There were some small changes to the language in the policy statement, which included a mark-to-market on the growth of consumer spending and acknowledgment of the slowing growth of business fixed investment. The statement acknowledged that “job gains have been strong, on average, and the unemployment rate has declined, household spending has continued to grow strongly, while the growth of business fixed investment has moderated from its rapid pace.”* Importantly, the statement made no mention of the recent tightening of financial conditions, or the increased volatility in equity markets, which is a telling change from the Committee’s recent past.
In other economic news, the October ISM non-manufacturing index registered 60.3 in October, declining from the lofty reading of 61.6 in September. The report detailed that business activity edged down to 62.5 from 65.2, new orders were little changed, while the employment index fell to 59.7 from 62.4.
The market is still broadly pricing in a hike at the December fed meeting with nearly 75% probability, odds which have stayed more or less constant for the last few months. Additional hikes are currently priced in for March and September 2019.
The Look Forward
The data calendar is active on the holiday-shortened week as the market is expecting updates on consumer prices, retail sales, and industrial production.
*Source: “Federal Reserve Issues FOMC Statement.”, 8 Nov. 2018, www.federalreserve.gov/newsevents/pressreleases/monetary20181108a.htm.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit http://www.chathamfinancial.com/legal-notices/.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions.