Written Commentary
CURRENCY FUTURES
The U.S. dollar index is higher and is likely to remain firm in advance of Wednesday’s FOMC policy statement at which U.S. policymakers are expected to hike the fed funds rate by at least 75 basis points for the third time.
Interest rate differential expectations remain bullish for the greenback.
The euro currency is lower despite news that annual producer inflation in Germany increased to a new record high of 45.8% in August of 2022 from 37.2% a month earlier and above market predictions of 37.1%.
The Bank of England may hike its main rate by 75 basis points at its policy meeting on September 22.
The annual inflation rate in Japan increased to 3.0% in August 2022 from 2.6% in July. This was the 12th consecutive month of increase in consumer prices and the fastest pace since September 2014.
In spite of this, the Bank of Japan Governor Haruhiko Kuroda will likely keep the central bank’s main policy unchanged at its meeting on Thursday.
STOCK INDEX FUTURES
Futures are lower in advance of this week’s Federal Open Market Committee meeting.
Housing starts in August were 1.575 million when 1.440 million were expected, and permits were 1.517 million, which compares to the anticipated 1.621 million.
Today is the first day of the two-day Federal Open Market Committee meeting.
Prospects of an aggressive Federal Reserve tightening policy continues to dent sentiment.
The dominant fundamental remains the hawkish Federal Reserve.
INTEREST RATE MARKET FUTURES
The Treasury will auction 20-year bonds.
The Fed is expected to deliver a third consecutive 75 basis point increase tomorrow, but some analysts believe it could raise the fed funds rate by a full percentage point.
According to financial futures markets, there is an 82.0% probability that the Federal Open Market Committee will hike its fed funds rate by 75 basis points and an 18.0% probability that the rate will increase by 100 basis points at the September 21 policy meeting.
The inverted Treasury yield curve is becoming more inverted and 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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