Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher on limited news.
The May Chicago Federal Reserve national activity index was 0.10, which is down from 0.47 in April.
The 9:00 central time May existing home sales report is anticipated to show 5.4 million.
The rate of inflation remains the key driver to this market. A likely bottom could come when there are indications that the rate of inflation is slowing, which could influence the Federal Reserve to become less hawkish.
CURRENCY FUTURES
The British pound is higher despite news that the Confederation of British Industry’s order book balance fell to 15 in June from 26 in the previous month and below market expectations of 22. Manufacturing output growth slowed in the three months to June, and growth is expected to ease further in the three months ahead.
The Japanese yen fell to its lowest level against the U.S. dollar in 23 years after the Bank of Japan last Friday kept its ultra-easy monetary policy unchanged, continuing its policy divergence with other major central banks. The BoJ left its key short-term interest rate unchanged at -0.10%, and the one for 10-year bond yields around 0% at its June meeting, as was widely expected. The board also said it would offer to buy unlimited amounts of bonds to defend its 0.25% cap every day, repeating its guidance on market operations it made in April.
INTEREST RATE MARKET FUTURES
Futures are lower after Federal Reserve Bank of St. Louis President James Bullard yesterday said the economy appears to be on track for more expansion this year.
Thomas Barkin of the Federal Reserve will speak at 10:00 and also at 2:30. Loretta Mester of the Federal Reserve will speak at 11:00.
Tomorrow Federal Reserve Chair Jerome Powell will testify on monetary policy before the Senate Banking Committee at 8:30 central time and on Thursday Powell will testify on monetary policy before at House Financial Services Committee at 9:00.
Financial futures markets are predicting there is a 96.9% probability that the Federal Open Market Committee will hike its fed funds rate by 75 basis points and a 3.1% probability that the rate will increase by 50 basis points at the July 27 meeting.
Currently the Fed’s focus is on inflation, while a slowing economy will be problem for the Fed to deal with later.
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