Sleepy Stocks Drift As Fed Minutes Fail To Ignite Buying Boost

The market's hopes that today's snow-delayed Fed minutes would resolve the debate over the fate of the balance sheet unwind, were dashed with the Fed confirming what traders already knew: the Fed would remain patient, data dependent, focused on the fading inflation impulse, and would seek a plan for when the Fed's balance sheet unwind would end by the end of 2019 suggesting that the QT may continue well into 2020 if not later, dependent on what the Fed concludes is a sufficient amount of required bank reserves.

As Bloomberg notes, "small moves in stocks, bonds, and FX as the Fed minutes portray a central bank that still sees a decent economy, slow-growing inflation, a tight labor market and an uncertain path for interest rates." The Minutes punctuated another rather quiet session that saw economically-sensitive stocks such as steelmakers, chemical and industrial companies outperform against a flat tape.

Following the ambivalent minutes, rate hike expectations were broadly unchanged, with the Fed Funds still pricing in a rate cut in 2020 as the divergence with the Fed's hawkish dots continues.

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As a result, stocks initially slumped, then rebounded, and traded modestly in the green, with the Nasdaq hugging the flatline, as banks, small caps, and energy stocks outperforming, offset by losses in homebuilders.

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Treasurys were mixed, with the long end taking on water and the curve initially steepening led by 30Y yields higher, even as the short end and 10Ys were more or less flat for the day...

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... however by the close of trading, today's steepening had faded most of the intraday move.

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Despite today's modest appetite, the scramble into safe havens observed in late December remains a distant memory, and the short end continued to trade about 10bps higher than Fed Funds.

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