Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher now that Federal Reserve Chair Powell’s speech yesterday is out of the way. Yesterday Powell reiterated at the European Central Bank Forum on Central Banking that at least two interest rate increases are likely necessary this year to bring the rate of inflation down to the U.S. central bank’s 2.0% target and that acting at consecutive policy meetings is not “off the table.”
In addition, Fed Chair Powell speaking at a banking conference in Madrid today, repeated that most FOMC members expect to increase interest rates at least two more times in 2023. Powell repeated that inflation pressures continue “to run high” and that “the process of getting inflation back down to 2.0% has a long way to go.”
The revised first quarter U.S. gross domestic product increased 2.0% when a 1.4% gain was expected.
Jobless claims in the week ended June 24 were 239,000 when 265,000 were anticipated.
The 9:00 central time May pending home sales report is predicted to show a 0.6% decline.
Stock index futures continue to perform better than the news would suggest.
CURRENCY FUTURES
The U.S. dollar index was lower in the overnight trade despite Powell’s hawkish comments but is higher now due to the stronger than estimated U.S. gross domestic product report.
An economic sentiment indicator in the euro area declined for a second consecutive month to 95.3 in June 2023, which is the lowest reading since last November and under market expectations of 96.0.
Net approvals for house purchases in the U.K. increased to 50,500 in May 2023, which is up from the revised 49,000 reported in the previous month and surpassing market expectations of 49,700.
Australian retail sales grew more than expected in May from the previous month, hitting a six-month high. Retail sales grew 0.7% in May from the prior month, which was higher than expectations for growth of 0.1%, and unchanged in April.
INTEREST RATE MARKET FUTURES
Futures came under pressure due to Powell’s hawkish interest rates comments and when the 7:30 U.S. economic reports were released.
Financial futures markets are predicting there is an 84% probability that the Federal Open Market Committee will hike its fed funds rate by 25 basis points at the July 26 meeting, and there is a 16% chance that the fed funds rate will remain unchanged.
Federal Reserve officials are indicating there will be two more fed funds rate hikes this year. However, financial futures markets pricing suggests the FOMC can only increase rates one more time in 2023.
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