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Flight to Quality Supports US Treasury Bonds


Stock index futures are lower due to ongoing concerns about tightening monetary policy from the Federal Reserve, disappointing results from popular consumer tech companies and geopolitical risks.

The 9:00 central time December leading indicators report is expected to show a 0.7% increase.

While the hawkish Federal Reserve dominates the headlines the longer-term fundamentals remain supportive.


U.K. retail sales in December fell by 3.7% from November, which is much larger than the 0.6% decline that was forecast.

In the longer term, a hawkish Bank of England will likely support the British pound. Financial futures markets have priced in up to four Bank of England interest rate hikes this year.

Japan’s consumer prices increased by 0.8% year-on-year in December 2021, accelerating from a 0.6% gain a month earlier and pointing to the fourth consecutive month of increase. The latest figure was the highest annual inflation rate since December 2019.

Bank of Japan Governor Haruhiko Kuroda said, “Unlike in the U.S. and Europe, we have to continue extremely accommodative monetary policy for the time being.”

Flight to quality buying is coming into the Japanese yen today. However, an accommodative Bank of Japan will likely result in long-term pressure on the yen.


Futures are higher in a flight to quality move.

Federal Reserve officials remain steadfast in their intentions to hike the fed funds rate three or four times this year.

The next Federal Open Market Committee meeting is scheduled for January 26. Most analysts are predicting the FOMC will keep its fed funds rate unchanged at 0% to .25% at that meeting.

Federal Reserve officials will likely signal next week that they will raise interest rates in March for the first time in more than three years and shrink their balance sheet soon afterwards.

Financial futures markets are predicting the FOMC will hike its fed funds rate at the March 26 policy meeting by 25 basis points.

Some analysts believe that if the rate of growth in the U.S. economy slows, it may be difficult for the Federal Reserve to maintain its recently ramped-up hawkish policy stance.

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