Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower after Federal Reserve officials said the central bank needs to keep raising interest rates to rein in inflation.
Despite an ongoing hawkish tone to Federal Reserve officials’ comments, stock index futures have performed well since mid-July.
Futures are likely to at least partially recover this afternoon.
CURRENCY FUTURES
The U.S. dollar is higher due to more hawkish rhetoric from Federal Reserve officials. Several policymakers have pointed out that a dovish pivot is unlikely despite signs that inflation could be peaking.
Interest rate differential expectations are becoming more supportive to the U.S. dollar.
The euro currency is lower despite news that Germany’s producer prices in July, posted the biggest increase ever recorded. Producer prices increased 37.2% on the year in July. This follows a 32.7% increase in June and a 33.6% advance in May. Compared with the preceding month, the producer price index was up 5.3% in July, also the biggest month-on-month increase ever recorded.
The euro currency is closing in on the key $1.00 parity level after recent economic reports pointed to an economic downturn in the European region.
The British pound is lower despite news that retail sales in the U.K. unexpectedly increased 0.3% over the previous month in July of 2022, beating market forecasts of a 0.2% decline.
Japan’s overall consumer inflation rose 2.6% from a year earlier in July, exceeding the Bank of Japan’s 2.0% target for four straight months. This figure compares with a 2.4% on-year increase in June.
INTEREST RATE MARKET FUTURES
Futures are lower after St. Louis Federal Reserve Bank President James Bullard on Thursday said he was leaning toward supporting a third consecutive 75 basis point rate hike in September, while Mary Daly of the San Francisco Fed said hiking rates by 50 or 75 basis points next month would be “reasonable.”
Thomas Barkin of the Federal Reserve will speak at 8:00 central time.
According to financial futures markets, there is a 54.5% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 45.5% probability that the rate will increase by 75 basis points at the September 21 policy meeting.
The inverted Treasury yield curve continues to flash warnings of economic risks ahead.
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