Written Commentary
STOCK INDEX FUTURES
S&P 500 and NASDAQ futures hit new annual highs yesterday due to the larger than expected decline in the U.S. producer price index. However, much of the gains were given back as a result of the Federal Open Market Committee’s ”hawkish pause” at its policy meeting.
The Federal Reserve kept its fed funds rate unchanged at 5.00%-5.25% and in line with expectations but warned further tightening would be necessary. Median forecasts from FOMC members point to a terminal interest rate of 5.60%, which implies two additional 25 basis point rate hikes this year.
Jobless claims in the week ended June 6 were 262,000 when 248,000 were expected.
Retail sales in May increased 0.3% when a decline of 0.1% was anticipated.
The June Philadelphia Federal Reserve manufacturing index was -13.7, which compares to the predicted -14.5.
The June Empire State manufacturing index was 6.6 when -15.1 was estimated.
Import prices in May were down 0.6% when a decrease of 0.5% was expected and export prices were down 1.9% when a decline of 0.3% was estimated.
Industrial production in May fell 0.2% when an increase of 0.1% was expected, and capacity utilization was 79.6%, which compares to the anticipated 79.7%.
Futures continue to overperform the news.
CURRENCY FUTURES
The U.S. dollar index was temporarily supported by yesterday’s hawkish statement from the FOMC.
The European Central Bank hiked its key lending rate by 25 basis points as anticipated at its policy meeting today.
The Bank of Japan is expected to maintain its ultra-loose monetary policy at its policy meeting on Friday and maintain its forecast for a moderate economic recovery.
Australia’s labor sector grew more than anticipated in May. The total number of employed people increased by 75,900. The reading was much higher than expectations for growth of 15,000.
INTEREST RATE MARKET FUTURES
Traders are currently anticipating the next rate hike will take place at the July meeting, although Fed Chair Powell said no decision for the next meeting has been made yet.
Financial futures markets are predicting there is a 74% 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 26% chance that the fed funds rate will remain unchanged.
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