Yellen, Jobs and a Stealth Rate Hike

Monday, we spoke about the multitude of events that will occur this week. These included today’s release of the Fed minutes from the March FOMC meeting, as well as the ADP jobs report. These events could, in fact, be a precursor to the crescendo and finale that will begin on Thursday with the start of an American – Chinese Summit. President Trump will meet with Xi Jinping, the president of China, for the first time. This week will also contain the nonfarm payroll jobs report.

Fed Considers Stealth Rate Hike

Today the Federal Reserve released the minutes from last month’s meeting. The minutes revealed the Fed’s intent to liquidate, in bonds, the $4.5 trillion it is holding on its balance sheets. As reported by Jeff Cox, of CNBC, “Unwinding the balance sheet is significant both because of its sheer size and the impact it could have on markets, as Fed members including Chair Janet Yellen have indicated that the move itself would amount to a rate hike.” This would effectively take the number of rate hikes this year to a total of four, assuming there are another two rate hikes as indicated by the Fed.

Immediately following last month’s meeting, analysts and market participants brought up the possibility of the Fed implementing a stealth hike. This action would be in the form of an intensive and concentrated reduction of the Fed’s balance sheet through the liquidation of Central Bank assets. This would occur rather than the Fed's standard procedure of reinvesting the proceeds. By removing these assets from inventory, the Fed would stimulate supply. This would lessen demand and have the effect of higher interest rates.

263,000 Private Sector Jobs Added in March

Today ADP released its figures for new jobs added in March. A total of 263,000 jobs were added, which makes this the third consecutive month of added strong new jobs. Previously, analysts and economists, surveyed by Bloomberg, estimated 175,000 new private sector jobs would be added, obviously far off the mark.

This brings into question the current estimate for the jobs report which will be released on Friday. The present estimate of 175,000 new jobs added comes into question after today's numbers were so underestimated.

Volatility Ramps Up as Traders and Market Participants Hold Onto Their Seats

Although it is not unusual for there to be an initial knee-jerk reaction to events, today's key reversal in U.S. equities and the precious metals was far from a typical reaction. Equities have been trading strongly higher with the Dow Jones trading as high as 20,900 (+160 points) before selling off and closing fractionally lower at 20,647, down 41 points.

Following the release of the jobs report and Fed minutes, gold immediately came under major selling pressure, trading to an intraday low of 1244 per ounce. As of this writing, gold is trading fractionally higher, up approximately a dollar at 1256.

If this is just a warm-up to events that will begin tomorrow and conclude with Friday's jobs report, market participants better hold onto their seats, as this ride could get a little bumpier.

Wishing you as always, good trading,