Written Commentary
STOCK INDEX FUTURES
Mortgage applications continued to decline for a fourth week and dropped 0.8% in the week ended September 2, with the refinancing index down 1.1%.
At 1:00 central time the Federal Reserve will release its Beige Book on the economy. This book is produced approximately two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Federal Reserve district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.
The hawkish Federal Reserve remains the dominant influence.
CURRENCY FUTURES
The U.S. dollar index advanced to its highest level since June 2002 due to expectations that the Federal Reserve will continue to aggressively raise interest rates.
The long term trend for the U.S. dollar is higher as Federal Reserve officials have become even more hawkish in their rhetoric recently.
The euro currency is lower despite news that the euro area economy expanded 0.8% on the quarter in the second quarter of 2022, which is higher than a 0.6% increase in the second estimate, and the strongest growth rate in three quarters.
The European Central Bank may raise its key interest rate by 75 basis points at its policy meeting tomorrow in response to last week’s record high inflation reading.
The Bank of Canada is expected to announce it will be raising its key interest rate today, making it the fifth consecutive increase this year. Some analysts are expecting the Bank of Canada to increase its key rate by 75 basis points, bringing it to 3.25%.
The Japanese yen fell to its lowest level against the U.S. dollar since August 1998 as the Federal Reserve is expected to continue to hike interest rates aggressively, while the Bank of Japan has held short-term rates in negative territory for more than six years.
INTEREST RATE MARKET FUTURES
Federal Reserve speakers today are Thomas Barkin at 8:00, Loretta Mester at 9:00, Lael Brainard at 10:55 and Michael Barr at 1:00.
According to financial futures markets, there is a 20.0% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and an 80.0% 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.
The bearish influence of the hawkish Federal Reserve is currently outweighing the bullish influence of a weakening U.S. economy.
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