Hawkish Fed Dominates Markets
STOCK INDEX FUTURES
Prospects of a more hawkish Federal Reserve are dominating price movements in the financial futures markets.
Stock index futures are lower after yesterday’s release of the minutes of the June 14 Federal Open Market Committee meeting revealed most Federal Reserve officials expected they would need to hike interest rates further this year after pausing increases in June. Some wanted to increase rates in June because the economy did not slow enough.
The Fed last month held its benchmark fed funds rate steady in a range between 5.00% and 5.25%, which was its first pause after 10 consecutive increases since March 2022 when officials hiked it from near zero.
Mortgage applications in the U.S. declined 4.4% in the week ended June 30, 2023, which is the first decline in four weeks, according to data from the Mortgage Bankers Association. Applications to purchase a home were down 4.6%, and those to refinance a home loan fell 4.1%.
The ADP employment report for June showed an increase of 497,000 when up 235,000 was expected.
Jobless claims in the week ended June 30 were 248,000 when 245,000 were anticipated.
The 8:45 central time June PMI composite final is predicted to be 54.1.
The 9:00 June Institute for Supply management services index is estimated to be 50.8, and the 9:00 May Job Openings and Labor Turnover Survey (JOLTS) is expected to be 9.9 million.
The U.S. dollar is lower despite the increased probability that the Federal Open Market Committee will hike its fed rate later this month.
Retail sales in the euro area were unchanged for the second straight month in May 2023, following declines in February and March and missing market expectations of a 0.2% increase.
German industrial orders in May increased 6.4% from the previous month on a seasonally and calendar adjusted basis when analysts anticipated a 1.2% increase.
Greater Toronto area home prices fell in June, which was the first drop in five months. The average price of a home fell 1.2% in June from May, while the number of sales declined 16.9%.
INTEREST RATE MARKET FUTURES
Futures are lower in response to yesterday’s release of the FOMC’s minutes from the June meeting and the larger than predicted increase in the ADP jobs report.
Financial futures markets are predicting there is a 94% 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 6% chance that the fed funds rate will remain unchanged.
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