Equites fell as the Treasury curve continued to flatten to the narrowest since 2007 amid speculation that the Federal Reserve see firm enough economic activity to raise rates as soon as June.

The selling yesterday commenced with the CPI suggesting stronger than expected inflationary pressures but accelerated following the comments from two Fed officials that higher rates may be warranted.  As widely noted Monday a different Fed president stated an interest rate hike may occur in June.

All three officials believe “two or three” interest rate hikes may occur by year end, a view not shared by the markets.

Defensive/technology issues led the declines but energy/financial issues posted advances on the continued rotation from momentum growth to value is continuing

Today’s release of the Minutes from the April Fed meeting could now be of even greater significance than earlier thought.  As noted above, the markets have not yet begun to discount a potential interest rate hike in 2016.  Three Fed officials have publically suggested two or three are possible.    Is this the view of the full Committee?  We will know at 2:00.

Last night the foreign markets were down.   London was down 0.38%, Paris down 0.16% and Frankfurt down 0.10%.  China was down 1.27%, Japan down 0.05%and Hang Sang down 1.45%.

The Dow should open flat ahead of the Fed Minutes which may change the trajectory of interest rates.  Oil is flat with crude close to $50. Will the inventory data at 10:30 cause of breach of this psychological mark?  The 10-year is flat at a 1.78% yield.


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