Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher for a fourth day, extending gains from last week as investors continue to assess the outlook for monetary policy. There is some evidence that economic activity and inflation cooled, which raised speculation that the Federal Reserve could ease the pace of monetary tightening later this year, despite policymakers reassuring markets that such a policy change is unlikely.
The August consumer price index report will be released on Tuesday and is expected to show a 0.1% decline, and the Wednesday August producer price index is anticipated to be down 0.1%.
Despite positive signs on inflation, investors believe Fed officials will continue to tighten policy this year.
The technical aspects are improving as downtrend lines have been penetrated on the upside.
CURRENCY FUTURES
The U.S. dollar index is lower due to the belief that this week’s inflation numbers could show small monthly declines.
The greenback will probably advance once the inflation reports are out of the way as traders then focus on the upcoming Federal Open Market Committee meeting.
Despite lower prices today, 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 Bank of England delayed its next interest rate policy decision by a week to September 22.
INTEREST RATE MARKET FUTURES
Federal Reserve governor Christopher Waller appeared to back another 75 basis point hike in the fed funds rate at the central bank’s meeting later this month in a speech Friday. Mr. Waller’s remarks explained why a slowdown in August inflation would not meaningfully change his near-term outlook. Mr. Waller did not specifically indicate whether he would back a 50, or a 75 basis point rate increase, but his remarks strongly suggested he favored the larger one.
The Treasury will auction three and 10-year notes today.
According to financial futures markets, there is a 12.0% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and an 88.0% 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.
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