Written Commentary
STOCK INDEX FUTURES
Mortgage applications declined to the lowest level in 22 years. In the week ended June 3, mortgage applications fell 6.5%, after the 2.3% decline in the previous week. Applications to refinance a home dropped 5.6% and those to purchase a single family home were down 7.1%.
Traders are watching economic data closely for clues about the Federal Reserve’s path for raising interest rates.
The 9:00 central time April wholesale inventories report is expected to show a 2.1% increase.
A key test for markets will be Friday’s release of the May consumer price index. The closely watched inflation gauge is expected to increase 8.2% in May from a year earlier, according to economists. This estimate is lower than the April actual figure of up 8.3%. Excluding food and energy, price growth is anticipated to cool slightly to an annual rate of 5.9% in May from 6.2% the previous month.
Stock index futures remain in an 8-day congestion pattern.
CURRENCY FUTURES
Across the 19 countries that use the euro as their currency, the euro zone’s gross domestic product grew 0.6% on the quarter in the first three months of the year. This is up from a second estimate of 0.3% for the period and beats the previous quarter’s 0.2% gain. Economists expected the economy to grow by 0.3% in the first quarter.
Industrial production in Germany edged 0.7% higher in April compared to market forecasts of a 1.0% increase.
The European Central Bank meets on Thursday and markets are expecting it to at least lay the groundwork for rapid rate hikes, if not begin them with a small increase.
The Japanese yen is lower as the Bank of Japan has remained committed to ultra-easy monetary policies, while many other central banks have begun hiking interest rates.
INTEREST RATE MARKET FUTURES
The Treasury will auction 10-year notes today.
According to the Atlanta Fed’s GDPNow model estimate for real GDP, growth in the second quarter of 2022 has been reduced to only 0.9%, which is down from 1.3% on June 1, and down from 1.9% on May 27.
Federal Reserve officials have indicated they plan to raise interest rates by half a percentage point at next week’s policy meeting, and by the same amount again in July.
Financial futures markets are predicting there is a 98.0% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 2.0% probability that the rate will increase by 75 basis points at the June 15 policy meeting.
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