Written Commentary
CURRENCY FUTURES
The U.S. dollar index was lower in the overnight trade and came under additional pressure when the U.S. producer price index report was released.
Wholesale prices in Germany declined 1.1% in May on the month when an increase of 0.2% was anticipated.
Industrial production in the euro area expanded 1.0% month-over-month in April 2023, partially offsetting the previous period’s contraction of 3.8% and surpassing market predictions of a 0.8% increase.
The European Central Bank will decide monetary policy tomorrow, and recent comments from officials suggest borrowing costs will continue to increase. The ECB is expected to hike rates by 25 basis points, after surprise hawkish moves from the Bank of Canada and the Reserve Bank of Australia last week.
The Bank of Japan is expected to maintain its ultra-loose monetary policy at its policy meeting on Friday and maintain its forecast for a moderate economic recovery.
STOCK INDEX FUTURES
S&P 500 futures hit new highs for the year.
The May producer price index fell 0.3% when down 0.1% was expected, and on a year-to year basis the producer price index increased 1.1% when a gain of 1.6% was anticipated.
The Federal Open Market Committee will conclude its two-day policy meeting today. A statement will be released at 1:00 P.M. central time.
The Committee will most likely keep its fed funds rate unchanged at 5.00%-5.25%, although there is a small chance of a 25 basis point increase.
The statement will likely show the Fed is resolved to fight inflation and will probably hint that it may hike its key interest rate at its July meeting.
Federal Reserve Chairman Jerome Powell will hold a press conference at 1:30.
Futures continue to overperform the news.
INTEREST RATE MARKET FUTURES
Futures were higher in the overnight trade and continued to advance when the U.S. producer price index report was released.
Financial futures markets are predicting there is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged policy meeting tomorrow, and there is a 7% chance of a 25 basis point increase.
An unchanged fed funds rate today from the FOMC would mark the first pause in the tightening campaign following ten consecutive increases.
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