Written Commentary
STOCK INDEX FUTURES
Stock index futures declined yesterday afternoon with follow-through today due to the hawkish tone to the Federal Open Market Committee statement.
Federal Reserve officials voted to hold interest rates steady at a 22-year high but signaled they were prepared to hike rates one more time this year to combat inflation.
Federal Reserve Chair Jerome Powell indicated the central bank is close to finished raising interest rates, but borrowing costs must remain higher for longer as the economy continues to hold up.
Jobless claims in the week ended September 16 were 201,000 when 225,000 were expected.
The September Philadelphia Federal Reserve manufacturing index was -13.5 when 0.5 was anticipated.
The 9:00 central time August existing home sales report is estimated to be 4.100 million and the August leading indicators report is expected to show a decline of 0.3%.
Stock index futures will have a difficult time advancing in light of the hawkish Federal Reserve, U.S. labor strike activity and debt ceiling issues.
CURRENCY FUTURES
The U.S. dollar index quickly advanced yesterday with follow-through today in light of the Federal Open Market Committee statement. The bullish influence of the ongoing hawkish Fed more than offset the undermining influences of U.S. labor strike activity and debt ceiling issues.
In the longer term, interest rate differential expectations remain favorable for the greenback, especially against the European currencies, since the U.S. economy appears to be holding up relatively well compared to economies in Europe.
The British pound fell to a six-month low against the U.S. dollar, after the Bank of England at its policy meeting today held its key interest rate unchanged at 5.25%, keeping borrowing costs at their highest level since 2008. This was the first pause in policy tightening in almost two years. The Monetary Policy Committee voted 5-4 in favor of holding rates steady, with four members in favor of an additional 25 basis point increase.
The Swiss franc fell to a two-month low after the Swiss National Bank unexpectedly held its policy rate unchanged at 1.75%, ending its tightening cycle.
Tomorrow the Bank of Japan is likely to keep its key rate unchanged at negative 0.1%. Japan has had negative interest rates since early 2016.
INTEREST RATE MARKET FUTURES
Futures are lower across the board due to ongoing hawkish Federal Reserve officials.
Financial futures markets are predicting there is a 70% probability that the Federal Open Market Committee will keep its fed funds rate unchanged and a 30% probability of a 25 basis point increase at its November 1 policy meeting.
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