Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower on news that the June consumer price index increased 1.3% when a gain of 1.1% was expected.
Mortgage applications fell 1.7% in the week ended July 8, led by a 3.6% decline in the purchase index.
The July Atlanta Fed’s Business Inflation Expectations survey will be released at 9:00 central time. The figure in June was 3.7%. The Atlanta Fed’s Business Inflation Expectations survey provides a monthly gauge of year-ahead inflation expectations and inflation uncertainty.
The Fed’s Beige Book on the economy will be released at 1:00. 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 evidence on economic conditions from each of the 12 Federal Reserve districts.
Earnings season is set to kick off tomorrow.
Prices are likely to partially recover this afternoon.
CURRENCY FUTURES
The U.S. dollar index remains near a 20-year high. The Federal Reserve is likely to hike interest rates more than other major central banks, which suggests higher prices for the U.S. dollar.
The euro currency firmed on news that industrial production in the euro area increased 0.8% from a month earlier in May of 2022, accelerating from an upwardly 0.5% increase in April and beating market expectations of a 0.3% gain.
Interest rate differentials remain supportive to the greenback. The U.S. Federal Reserve is seen delivering a 100 basis point increase in its fed funds rate later this month, while the European Central Bank is only expected to raise key rates by 25 basis points later this month, which would be the first increase in over 11 years.
Lower prices are likely for the euro currency.
The Bank of Canada is expected later today to deliver a 75 basis point increase in its key interest rate to 2.25%, which would be its biggest rate increase since 1998.
INTEREST RATE MARKET FUTURES
Yesterday the International Monetary Fund cut its growth projections for the U.S. economy this year and for 2023, and raised its unemployment rate estimates through 2025.
Portions of the U.S. yield curve remained inverted with yields on shorter-dated Treasury issues above those of longer-dated debt.
The Treasury will auction 30-year bonds today.
According to financial futures markets, it is likely now that the Federal Open Market Committee will hike its fed funds rate by 100 basis points at the July 27 meeting.
Prices are likely to partially recover this afternoon.
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