Written Commentary
CURRENCY FUTURES
The British pound fell to a record low against the U.S. dollar. The pound fell 5.0% at one point to approximately $1.0327 during Asian trading hours.
On Friday, the new U.K. government announced a plan aimed to boost growth that includes several tax cuts. The announcement did not please investors who worry this will raise the country’s debt to unsustainable levels at a time of a looming recession.
The U.K. finance minister said during the weekend that there’s “more to come” on tax cuts.
A statement from the Bank of England is expected today. There is some talk that the Bank of England may need to step in with an emergency interest rate hike to curb the plunge in the pound.
The U.S. dollar index is higher today with much of the strength by default, as additional signs of economic weakness emerge in Europe.
Interest rate differential expectations remain bullish for the greenback long term.
The euro currency is lower after the Ifo business climate indicator for Germany dropped to 84.3 in September, which is well below the market consensus of 87.0.
The Japanese yen is lower, heading back towards its lowest levels in 24 years and prompting monetary authorities to issue new warnings against sharp yen declines just days after the government intervened in the currency markets for the first time since 1998 to limit yen weakness.
Bank of Japan Governor Kuroda said there is a possibility that the global economic slowdown Is Increasing.
STOCK INDEX FUTURES
Futures are lower as indications of global economic weakness and expectations of further interest rate increases remain.
The Chicago Federal Reserve national activity index was 0.00 in August versus +0.29 in July.
The hawkish Federal Reserve remains the dominant fundamental.
INTEREST RATE MARKET FUTURES
Federal Reserve speakers today are Susan Collins at 9:00, Raphael Bostic at 11:00, Lorie Logan at 11:30 and Loretta Mester at 3:00.
According to financial futures markets, there is a 32.0% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 68.0% probability that the rate will increase by 75 basis points at the November 2 policy meeting.
The inverted Treasury yield curve continues to warn of economic risks ahead.
The bearish influence of a hawkish Federal Reserve is overpowering the bullish influence of a weakening economy.
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