Risk Off Mode Continues

STOCK INDEX FUTURES

Stock index futures are lower again today after late Tuesday Fitch Ratings downgraded the U.S.’s credit rating to AA+ from AAA. This surprise move from Fitch prompted a risk-off mood in the markets.

Jobless claims in the week ended July 29 were 227,000 when 225,000 were expected.

Nonfarm productivity in the second quarter increased 3.7% when a gain of 1.3% was anticipated, and unit labor costs in the second quarter increased 1.6% when up 2.6% was estimated.

The 8:45 central time July PMI composite is predicted to be 52.4.

There are two 9:00 reports. June factory orders are estimated to be up 1.7%, and the July Institute for Supply Management services index is expected to be 53.0.

CURRENCY FUTURES

The Bank of England raised its key interest rate by 25 basis points to 5.25% at its policy meeting today, marking the 14th consecutive increase, and bringing borrowing costs to new 2008 highs. The consensus was for a 25 basis point increase, although many analysts saw a significant possibility of a second 50 basis point hike.

Bank of England Governor Bailey said policy needs to continue to be restrictive.

The British pound fell toward the $1.26 level, extending its recent decline to an over-one-month low.

Producer prices in the euro area declined by 3.4% year-on-year in June 2023, compared to market expectations of a 3.1% drop. This marked the second consecutive decline in producer prices and the steepest since June 2020.

The final au Jibun Bank Japan Services purchasing managers’ index fell to a seasonally adjusted 53.8 last month from 54.0 in June. The rate of growth in July eased to the slowest since January.

 INTEREST RATE MARKET FUTURES

Recent weakness in futures, especially at the long end of the curve, may be due to expectations of increased Treasury offerings.

Financial futures markets are predicting there is an 82% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is an 18% probability of a 25 basis point increase.

The Federal Open Market Committee’s 25 basis point increase in its fed funds rate on July 26 is probably the last one in this cycle.

 

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