Clarksville, TN – The Federal Open Market Committee left short-term interest rates unchanged, but the tone of the policy statement was unexpectedly hawkish. The FOMC removed the phrase about downside risks from the global economy, but said that it would monitor global economic and financial developments.
It also specifically talked about the decision framework for “the next meeting,” clearly putting a December 16th rate hike back in play.
We got some good news out of Washington for a change. Congress and the White House reached a tentative agreement on a two-year budget deal, which would also suspend the debt ceiling until March 2017.That removes a key near-term uncertainty for the markets (although market participants hadn’t seemed too worried).
The economic data were mixed. Real GDP rose at a 1.5% annual rate in 3Q15, as expected, as strength in consumer spending was partly offset by slower inventory growth. Personal income and spending figures for September showed some loss of momentum at the end of the quarter. The Employment Cost Index rose as anticipated, but left the year-over-year pace at a lackluster 2.0% (+1.9% for private industry).
Next week, the economic data will be important. With a December rate increase on the table, the October job market data will be seen as a possible driver. Job growth is likely to have been moderately strong, but watch for possible revisions to August and September. Note that the ADP payroll estimate includes a breakdown by size of firm – hiring at small and medium-size businesses picked up in recent quarters, driving overall job growth higher, but the pace appeared to slow in 3Q15.
The ISM Manufacturing Index may improve somewhat (still mixed across industries). Fed Chair Janet Yellen will testify and Vice Chair Stanley Fischer will give a dinner speech on Wednesday, but neither is set to talk specifically about monetary policy (that may not prevent someone from asking).
Indices
Last | Last Week | YTD return % | |
DJIA | 17755.80 | 17489.16 | -0.38% |
NASDAQ | 5074.27 | 4920.05 | 7.14% |
S&P 500 | 2089.41 | 2052.51 | 1.48% |
MSCI EAFE | 1759.41 | 1759.62 | -0.87% |
Russell 2000 | 1165.63 | 1154.52 | -3.24% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.06 | 0.07 |
30-year mortgage | 3.91 | 3.98 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.527 | 1.612 |
Dollars per Euro | 1.097 | 1.274 |
Japanese Yen per Dollar | 120.830 | 108.090 |
Canadian Dollars per Dollar | 1.321 | 1.116 |
Mexican Peso per Dollar | 16.638 | 13.443 |
Commodities
Last | 1 year ago | |
Crude Oil | 46.06 | 82.20 |
Gold | 1160.10 | 1228.26 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.73 | 0.63 |
10-year treasury | 2.15 | 1.92 |
10-year municipal (TEY) | 3.19 | 3.26 |
Treasury Yield Curve – 10/30/2015
As of close of business 10/29/2015
Economic Calendar
Nov 1st | — | Daylight Savings Time ends |
Nov 2nd | — | ISM Manufacturing Index (October) |
Nov 3rd | — | Motor Vehicle Sales (October) |
Nov 4th | — | ADP Payroll Estimate (October) ISM Non-Manufacturing Index (October) Yellen Testimony (on regulation) Fed Vice Chair Fischer Speaks (on central bank independence) |
Nov 5th | — | Jobless Claims (week ending 10/31) |
Nov 6th | — | Employment Report (October) |
Nov 11th | — | Veterans Day (bond market closed) |
Important Disclosures
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
Material prepared by Raymond James for use by its financial advisors.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business October 29th, 2015.