ECB, BOE & SNB Hike Rates
The U.S. dollar index put in a poor performance yesterday, closing lower on the day, despite the bullish FOMC, but is higher today.
Interest rate differential expectations are long-term bearish for the greenback, and lower prices are likely.
Germany’s wholesale price index eased in November compared to the previous month. Wholesale prices increased 14.9% on the year compared to an October reading of 17.4%.
The European Central Bank increased its key interest rate today by 50 basis points to 2.0% from 1.50%.
The Bank of England today hiked its main interest rate by 50 basis points to 3.5% From 3.0% and the Swiss National Bank raised its policy rate by 50 basis points to 1.0%, which takes borrowing costs to the highest level since 2008.
STOCK INDEX FUTURES
Stock index futures declined yesterday with follow-through today on the belief that a more hawkish Fed could tip the economy into recession.
Yesterday the Federal Open Market Committee increased its fed funds rate by half a percentage point to 4.25%-4.50% and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023.
The Fed’s latest quarterly summary of economic projections showed U.S. central bankers see the policy rate at 5.1% by the end of next year, according to the median estimate of all 19 Fed policymakers. The projection of the target federal funds rate increasing to 5.1% in 2023 is slightly higher than traders expected before the meeting.
At a press conference Fed Chair Jerome Powell said that it is too soon to talk about the U.S. central bank lowering interest rates and ruled out any changes to the Fed’s 2.0% inflation target.
Retail sales in November declined 0.6% when down 0.2% was expected.
The December Philadelphia Federal Reserve manufacturing index was -13.8 when -9.9 was anticipated.
The Empire State manufacturing index was -11.2 when -0.4 was predicted.
Jobless claims in the week ended December 10 were 211,000 when 231,000 were estimated.
The November industrial production report showed a 0.2% decline when a 0.1% increase was expected and capacity utilization was 79.7%, which compares to the anticipated 79.8%.
The 9:00 business inventories report is predicted to show a 0.4% increase.
Despite lower prices today, the fundamentals and technicals for stock index futures remain supportive.
INTEREST RATE MARKET FUTURES
Futures are steady at the front of the curve and are higher at the long end of the curve.
According to financial futures markets currently, there is a 74.0% probability that the Federal Open Market Committee will increase its fed funds rate by 50 basis points at the December 14 policy meeting and a 26.0% probability that the rate will be hiked by 75 basis points.
The fundamental and technical aspects are supportive for futures.
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