BoJ Policy Meeting Surprises

CURRENCY FUTURES

German gross domestic product was unchanged from the previous three months, but fell short of 0.1% growth predicted by economists.

The German consumer price inflation rate slowed to 6.2% year-on-year in July 2023, which is down from 6.4% in the previous month and in line with market expectations.

The economic sentiment indicator in the euro area declined for a third straight month to 94.5 in July 2023, which is the lowest reading since last October and below market estimates of 95.0.

England and Wales reported the most company insolvencies since 2009 in the second quarter.

The Bank of England will hold its next policy meeting on August 3, and an interest rate increase of 25 basis points is widely anticipated, taking policy rates to 5.25%.

The Bank of Japan announced “greater flexibility” in its monetary policy, surprising global financial markets. The BoJ said the 0.5% ceiling on yield movements was a reference point rather than a rigid limit.

In addition, the BoJ said there are significant downside risks to Japan’s economy and prices.

STOCK INDEX FUTURES

Much of yesterday’s late sell-off was due to reports that the Bank of Japan could be slightly less accommodative.

Stock index futures are higher today on ideas that central banks are nearing an end to their tightening cycle.

Personal income in June increased 0.3% when a gain of 0.4% was expected, and personal consumption expenditures were up 0.5% when up 0.4% was anticipated.

The  second quarter employment cost index increased 1.0% when a gain of 1.1% was predicted.

Expect futures to firm now that Wednesday’s Federal Open Market Committee’s fed funds hike is out of the way.

INTEREST RATE MARKET FUTURES

Financial futures markets are predicting there is an 80% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 20% probability of a 25 basis point increase.

Wednesday’s interest rate increase from the Federal Open Market Committee is probably the last one in this cycle.

 

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