Written Commentary
CURRENCY FUTURES
The U.S. dollar index is lower despite yesterday’s hawkish comments Federal Reserve Bank of Cleveland President Loretta Mester.
The euro currency continued to strengthen, reaching its highest level since May 8 on news that German inflation increased by 6.8% on the year in June, according to the federal statistics office.
The euro is higher despite news that the ZEW Indicator of Economic Sentiment for Germany dropped to -14.7 in July 2023 from the previous month’s reading of -8.5 and under market expectations of -10.5.
The British pound advanced to its highest level since April 2022, after stronger-than-expected pay growth data added pressure on the Bank of England to keep hiking interest rates. British wages, excluding bonuses, were 7.3% higher in the three months to May than a year ago and above predictions of 7.1%.
However, the U.K. unemployment rate unexpectedly increased from 3.8% to 4.0% in May.
Australian consumer sentiment improved from near record lows in early July.
The Westpac Consumer Sentiment index increased 2.7% in June as expected.
STOCK INDEX FUTURES
Stock index futures are higher ahead of inflation data later in the week and the start of the second-quarter earnings season.
The U.S. June consumer price index report is due tomorrow, and the June producer price index is scheduled to be released on Thursday.
The NFIB Small Business Optimism Index advanced to 91 in June 2023, beating market expectations of 89.8. However, the index remained below its 49-year average of 98 for the past 18 months.
Many analysts are leaning to the bearish side, which from a contrarian point of view suggests higher prices, at least in the short term.
INTEREST RATE MARKET FUTURES
Loretta Mester, president of the Federal Reserve Bank of Cleveland said inflation in core goods and services remains high and tighter monetary policies will be needed to bring inflation down to the central bank’s 2.0% target.
Futures are steady to higher.
The Treasury will auction three-year notes.
Financial futures markets are predicting there is a 95% probability that the Federal Open Market Committee will hike its fed funds rate by 25 basis points at the July 26 meeting, and there is a 5% chance that the fed funds rate will remain unchanged.
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