Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher despite mostly bearish news.
The International Monetary Fund reduced its growth outlook for the U.S. economy to 1.6% for the current year and only 1.0% for next year.
The September producer price index increased 0.4% when up 0.2% was expected. On an annualized basis the producer price index was up 8.5% when a gain of 8.4% was anticipated.
Mortgage applications continued to move lower and fell 2.0% in the first week of October. Applications to purchase a home loan declined 2.1% and the refinancing index dropped 1.8%.
Market participants are awaiting the 1:00 central time release of the minutes of the Federal Reserve’s September 21 policy meeting.
CURRENCY FUTURES
The U.S. dollar index was supported by the U.S. producer price index report.
Industrial production in the euro area increased 1.5% from a month earlier in August 2022, rebounding from a 2.3% contraction in July and beating market expectations of 0.6 % growth.
The U.K. economy contracted by 0.3% month-over-month in August of 2022, following a downwardly revised 0.1% increase in July and compared to market expectations of unchanged. Production fell by 1.8% with manufacturing declining by 1.6%.
Bank of England Chief Economist Huw Pill signaled interest rates are likely to increase sharply in November to fight inflation and respond to stimulus coming from the government’s tax and spending program.
The Japanese yen fell to a new 24-year low against the U.S. dollar.
Core machinery orders in Japan declined 5.8% in August when down 2.3% was predicted.
INTEREST RATE MARKET FUTURES
Futures came under pressure when the producer price index report was reported.
Federal Reserve speakers today are Neel Kashkari at 9:00, Michael Barr at 12:45 and Michelle Bowman at 5:30.
The Treasury will auction 10-year notes today.
According to financial futures markets, there is an 81.0% probability that the Federal Open Market Committee will increase its fed funds rate by 75 basis points at the November 2 policy meeting and a 19.0% probability that the rate will be hiked by 50 basis points.
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