FED: SF's Daly: We Cut Rates To Try To Support Labor Market

• Stocks remain weaker but off session lows Wednesday, markets digesting the slightly hawkish July FOMC minutes. Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment," the report said.
• Currently, he DJIA trades down 10.73 points (-0.02%) at 44911.47, S&P E-Minis down 28.5 points (-0.44%) at 6404.75, Nasdaq down 203.6 points (-1%) at 21111.06.
• Information Technology sector stocks led decliners on the day after Forbes reported the Trump administration "may seek equity in any such firms awarded federal grants under the Biden-era CHIPS Act. Lutnick said the government want to acquire an equity stake in Intel in exchange for grants earmarked under the CHIPS Act."
• Intel led the decline -7.45%, followed by Dell Technologies -6.03%, Micron Technology -5.71%, Keysight Technologies -5.27%, Palantir Technologies -3.01% and Super Micro Computer -2.73%.
• Consumer Discretionary sector share followed close behind: DoorDash -3.62%, Pool Corp -2.76%, Norwegian Cruise Line Holdings -2.74%, Tesla -2.71% and Best Buy Co -2.70%.
• On the positive side, Energy sector shares led gainers as crude prices rose (WTI +0.86 at 63.21): Valero Energy +1.86%, Exxon Mobil +1.41%, EQT Corp +1.23%, Phillips 66 +1.00%, EOG Resources +0.93% and Marathon Petroleum +0.92%.

• Crude has gained ground today following EIA data showing crude inventory draws, coupled with added hopes of an end to the Russia-Ukraine war.
• WTI Sep 25 is up by 1.4% at $63.2/bbl.
• Bloomberg reports that Italian PM Giorgia Meloni is pushing for security guarantees for Ukraine that, under the scenario of a peace deal or ceasefire being in place, would see its allies decide within 24 hours of a renewed Russian attack whether to provide military support to Kyiv.
• Despite today’s gains, WTI futures remain in a clear bear cycle, with initial support at $61.99, the Jun 30 low, which has been pierced. A continuation lower would open $57.71, the May 30 low.
• Initial resistance to watch is $64.72, the 50-day EMA, while key short-term resistance has been defined at $69.36, the Jul 30 high.
• Elsewhere, spot gold has risen by 0.9% to $3,345/oz, as markets remain cautious ahead of Friday's Jackson Hole appearance from Chair Powell, while headlines from Trump calling for Fed Governor Cook's resignation represent a developing risk to monitor.
• A bull cycle in gold remains intact, with sights on $3,439.0, the Aug 23 high. On the downside, first support to watch lies at $3,268.2, the Jul 30 low.
• Meanwhile, silver has also rallied by 1.1% to $37.8/oz, narrowing the gap to initial resistance at $39.655, a Fibonacci projection.

In keeping with a divided Committee, the July meeting minutes contained slightly mixed messages about the FOMC's view of the outlook for inflation, labor market, and ultimately policy. But overall the minutes were more cautious about inflation than the labor market, and the key passage - which appears to have generated a slightly hawkish market reaction - is "participants generally pointed to risks to both sides of the Committee's dual mandate, emphasizing upside risk to inflation and downside risk to employment. A majority of participants judged the upside risk to inflation as the greater of these two risks, while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk." 

• Given that, it's no surprise the minutes more broadly paint a cautious outlook on inflation, though it's not far removed from what we've heard from various members including Chair Powell at the press conference. Per the minutes: "with regard to the outlook for inflation, participants generally expected inflation to increase in the near term. Participants judged that considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year's increase in tariffs. In terms of timing, many participants noted that it could take some time for the full effects of higher tariffs to be felt in consumer goods and services prices."
• In these minutes, "a couple" almost certainly refers to dissenting Governors Bowman and Waller. They also saw inflation trends as more benign than the majority ("Many" participants saw inflation remaining "somewhat above" target with tariffs becoming "more apparent in the data"), and close to target ex-tariffs. So this small minority saw little to worry about on the inflation front, but plenty to be concerned about on the jobs front.
• Same as in the June meeting, only "a few" had a "transitory" base case view of tariffs' impact on inflation.
• But compared with June's meeting minutes, which said "most participants noted the risk that tariffs could have more persistent effects on inflation", the outlook on inflation persistence appeared to be a little more mixed in July. For instance, "a few participants stressed that current demand conditions were limiting firms' ability to pass tariff costs into prices." And just "a few" remarked "that tariff-related factors, including supply chain disruptions, could lead to stubbornly elevated inflation and that it may be difficult to disentangle tariff-related price increases from changes in underlying trend inflation."
• Despite that seemingly more mixed set of opinions, overall there clearly was concern by the majority over longer-term inflation issues stemming from tariffs that kept many on the Committee cautious: "Several participants emphasized that inflation had exceeded 2 percent for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation....Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored."