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June 12, 2018

FOMC to Conclude Meeting Tomorrow

 

Peace and Prosperity

The historic meeting between US President Donald Trump and North Korean leader Kim Jong Un concluded today with a fresh, new agreement between the two nations intended to increase peace and prosperity between the Korean Peninsula and the rest of the world.  While the final commitments from each side lack substantial detail (mainly timing and accountability), Trump stated that the two nations would “meet again...many times” to further negotiate the terms of the accord.  High-level provisions of the agreement included:      

North Korea - Commitment to begin the complete denuclearization of the Korean peninsula “very quickly”, including the destruction of a missile test site in northwest North Korea.
United States - Commitment to cease joint military exercises with South Korea.  In the past, these exercises have been a priority for the US military in its efforts to defend South Korea should the need suddenly arise.  President Trump noted the upside in ceasing the “tremendously expensive” drills and bringing home the 28,500 US troops stationed in South Korea, while confirming it was an action that held weight at the negotiation table with Kim.

A complete version of the document signed by President Trump and Kim Jong Un can be found here.  Another question that still remains outstanding – what was Dennis Rodman doing in Singapore??

Inflation Continues Steady Climb in May

Consumer price data released by the Labor Department this morning displayed a modest increase in the pace of core inflation during May compared to the month prior.  Headline CPI printed at +0.2% (+0.2% prior), matching estimates, boosted by a 0.9% seasonally adjusted rise in energy prices.  Compared to a year earlier, overall CPI was up 2.8% (strongest since February 2012).  Core CPI similarly matched median forecasts, gaining 0.2% on the month – a slight increase from its +0.1% pace during the prior month.  On an annual basis, core consumer prices rose 2.2%.  Overall, there were no surprises in this morning’s inflation data, and expectations for a Fed rate hike at tomorrow’s meeting remain a near certainty.  The text of the FOMC statement and press conference by Jerome Powell afterwards will garner the majority of the focus from financial markets.  The US dollar gained 0.3% against major currencies ahead of tomorrow’s decision.

Financial Markets Shrug at New Diplomacy

Both equity and bond markets seemingly took the “wait and see” stance with regards to how much actual progress will result from the historic accord.  All three major US stock indices fluctuated within a tight range throughout the day, with the tech-heavy Nasdaq (+0.55%) and S&P 500 (+0.15%) posting marginal gains while the DJIA finished near unchanged.  US Treasurys experienced a mild selloff, with yields/swap rates climbing 1-2bps across the curve.  The yield curve continues to hover near its flattest level in more than a decade, as the 2s-10s spread narrowed to 42bps.  In commodities markets, gold futures declined 0.3% to just under $1,300/ounce, while crude oil prices finished near flat for the session, with a barrel of WTI crude remaining near $66.

            

 

 

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