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Fed plans balance sheet shrinkage, U.S. stocks fade on changing monetary and fiscal expectations, and the Dudley trade is on. Here are some of the things people in markets are talking about today.

A Slimmer Balance Sheet

Most Fed officials think the central bank should start shrinking its balance sheet later this year, the minutes of the March meeting released Wednesday showed. While monetary policymakers aren’t too optimistic about the prospect for a quick fiscal fillip from Washington, the persistent easing of financial conditions gave them reason to see upside risks for economic activity. Some at the central bank also suggested that U.S. stocks looked expensive by traditional valuation metrics.

Late-Session Slide for Stocks

Markets listened. U.S. stocks hit the skids late in the trading day amid the hawkish Fed minutes and comments from House Speaker Paul Ryan suggesting tax reform promised by the Republican-controlled Congress and President Donald Trump wouldn’t be completed any time soon. The Dow Jones Industrial Average forfeited a 198 point gain to finish down 0.2 percent. Treasuries rallied and the U.S. dollar index declined modestly. West Texas Intermediate crude oil dropped below $51 per barrel after data showed a rise in U.S. stockpiles.

The Dudley Trade

The Fed’s communique didn’t signal that a reduction of its assets would coincide with a period in which its policy rate would remain steady, as New York Fed President Bill Dudley mused last week. However, markets already seem to have subscribed to that view, and continued to do so Wednesday. Expectations for tightening in 2018, derived from the spread between December 2017 and December 2018 Eurodollar futures contracts, have declined notably while the Treasury yield curve steepened.

Futures Down

Taking their cue from the poor ending to Wednesday’s U.S. trading, S&P/ASX 200 and Nikkei 225 futures were both in negative territory as of 6:00 a.m. Tokyo time. A late-session advance in the yen relative to the U.S. dollar bodes ill for Japanese equities. Equities in China and Taiwan led gains in the region yesterday.

Coming Up

It’s a fairly busy day for economic data in Asia, with figures on Japanese international securities transactions for the week ending March 31 as well as the March reading of China’s Caixin Services PMI and India’s Nikkei Services PMI. The headline event, however, will be the first meeting between Trump and Chinese President Xi Jinping in Florida.

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