U.S. Indices were little changed on Wednesday while T-Notes bull steepened with upside in both assets seen in late trade after the FOMC Minutes. The Minutes were largely as expected, signalling the Fed is in no rush to adjust policy and they should be cautious with future adjustments. However, the commentary that various participants suggested may be appropriate to pause or slow the balance sheet run off until the debt ceiling issue is resolved took the limelight, sending T-Notes to session highs with stocks following suit. Elsewhere, the Dollar was bid but off highs post FOMC Minutes while oil prices settled in the green, but well-off earlier peaks. Focus aside from Fed was largely centered around geopolitics with more issues surrounding Ukraine and Russia peace talks; Russia accused the EU of supporting Ukraine in its attack on the CPC pipeline, while tensions remain with Ukraine excluded from Russia/US talks. US President Trump also called Ukraine President a dictator, adding he needs to move fast, or he is not going to have a country left. Elsewhere, the US saw mixed housing data, with Building Permits beating expectations but Housing Starts missing. Fed’s Bostic also spoke, noting he does not know what the future holds when asked about more cuts in 2025, but said that everything is on the table at every meeting. He also noted it is appropriate to be more cautious with the balance sheet now as they approach the threshold level and to be sure the drawdown does not go too far. The FOMC Minutes were largely as expected but focus centred around discussions on the balance sheet. On policy, the Minutes noted all participants said it was appropriate to hold rates in January, while the vast majority pointed to policy still being in a restrictive stance. In fitting with recent commentary, the Minutes noted they want to see further progress on inflation before making adjustments to rates, while the majority said they must be careful in considering any adjustments. On the neutral rate, a few said that the current rate may not be far above its neutral level. On the balance sheet, various participants said it may be appropriate to consider pausing or slowing the balance sheet runoff until there is a resolution of the debt ceiling dynamics. On US President Trump policies, some said potential changes to policy have a potential to hinder the disinflation process, while some noted it will be difficult to distinguish between persistent changes in inflation and more temporary changes associated with new policies. Elsewhere, on financial stability, several mentioned issues related to the banking system. Meanwhile, a few participants discussed vulnerabilities associated with CRE exposures, noting that risks remained, although there were some signs that the deterioration of conditions in the CRE sector was lessening. Housing Starts fell by 9.8% in January to 1.366 million (exp. 1.390 million) after surging 16.1% in December. Pantheon Macroeconomics noted multi-family starts are exceptionally volatile, although they now appear to be only a bit above their underlying trend. While the agency thinks the drop in single family starts in January “mostly reflects very cold weather”. Ahead, Pantheon contends that Housing Starts will unwind any weather-related weakness soon, although “this might have to wait until March given that February so far has also been unseasonably cold”. Meanwhile, Building Permits rose 0.1% to 1.483 million (exp. 1.460 million) from 1.482 million. Permits for housing with two to four units surged by 13.2% to 60k, offsetting the 1.4% drop in housing with five or more units to 427k, while permits for housing with one unit remained unchanged at 996k. On construction activity, Pantheon expects a significant decline in construction activity, however, in the near term, “Multi-family construction looks set broadly to flatline now that the boom and bust in rental growth during the pandemic shown in our third chart has come to an end”. Elsewhere, Oil closed higher by a further 0.63% while Gold was flat following a volatile trading.
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