U.S. equities gave back part of a recent rally that came courtesy of eased trade concerns, as investors appeared somewhat rattled by increased geopolitical uncertainty surrounding Syria and Russia, as well as the increased drama within the White House. Treasury yields were lower, as a read on consumer price inflation was mostly in line with expectations, and the afternoon release of the minutes from the Fed’s March meeting showed the Committee may lean more toward a faster pace of future rate hikes. Meanwhile, gold and crude oil prices were higher and the U.S dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) fell 219 points (0.9%) to 24,189, the S&P 500 Index lost 15 points (0.6%) to 2,642, and the NASDAQ Composite declined 25 points (0.4%) to 7,069. In moderate volume, 727 million shares were traded on the NYSE and 1.8 billion shares changed hands on the NASDAQ. WTI crude oil rose $1.31 to $66.82 per barrel and wholesale gasoline gained $0.03 to $2.07 per gallon. Elsewhere, the Bloomberg gold spot price added $11.57 to $1,351.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 89.55.

The Consumer Price Index (CPI) dipped 0.1% month-over-month (m/m) in March, versus the Bloomberg estimate of a flat reading, and compared to February’s unrevised 0.2% increase. The core rate, which strips out food and energy, rose 0.2% m/m, matching expectations and February’s gain. Y/Y, prices were 2.4% higher for the headline rate, in line with forecasts and versus February’s unrevised 2.2% rise. The core rate was up 2.1% y/y, matching projections and compared to February’s unadjusted 1.8% rise. The core rate was the highest in just over a year as the drag from wireless-phone services costs eased.

The MBA Mortgage Application Index declined 1.9% last week, following the prior week’s 3.3% drop. The decrease came as a 1.7% decline in the Refinance Index was met with a 2.0% fall for the Purchase Index. The average 30-year mortgage rate fell 3 basis points (bps) to 4.66%.

The minutes from the Fed’s March meeting, released in afternoon action, showed that Committee members leaned more toward a slightly quicker pace of tightening amid their positive growth outlook and high confidence that it can reach its inflation target. The report noted that, “A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected.” At the March meeting, the first under newly-minted Chairman Jerome Powel, the Committee expectedly increased the target for the funds rate by 25 bps, while also noting a more hawkish tone. Despite the Committee’s upbeat outlook, the minutes indicated that, “Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook,” but “a strong majority of participants viewed the prospect of retaliatory trade actions by other countries as a downside risk.”

Treasuries were higher, as the yield on the 2-year fell 1 basis point to 2.30%, the yield on the 10-year note lost 2 bps to 2.45%, and the 30-year bond rate declined 3 bps to 2.99%.

Treasury yields and the U.S. dollar have seen some downside pressure as trade war concerns eased yesterday to lead the stock market’s strong gains, fostered by a conciliatory speech from Chinese President Xi, but geopolitical worries remain elevated and uncertainty toward the White House is festering. The geopolitical concerns are being fueled by President Donald Trump’s warning of missiles being sent into Syria in response to suspected chemical weapons attacks, while adding that our relations with Russia are worse than they have ever been.

Schwab Center for Financial Research – Market Analysis Group

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