Written Commentary
CURRENCY FUTURES
The U.S. dollar index is higher and hit the highest level since June of 2002. Most of the recent strength is due to the hawkish Federal Reserve, but now there is some flight to quality buying coming in as a result of increased geopolitical concerns.
Between now and the release of the FOMC statement would be a good time to take profits on long U.S. dollar positions.
Interest rate differential expectations remain bullish for the greenback long term.
The Bank of England may hike its main rate by 75 basis points at its policy meeting tomorrow.
The Bank of Japan announced an unscheduled bond-purchase operation as it seeks to limit upward pressure on yields.
The Bank of Japan Governor Haruhiko Kuroda will likely keep the central bank’s main policy unchanged at its meeting on Thursday.
STOCK INDEX FUTURES
The Federal Open Market Committee will conclude its two-day policy meeting today. A statement will be released at 1:00 central time and Federal Reserve Chairman Jerome Powell will hold a press conference at 1:30.
The FOMC will likely increase its fed funds rate by 75 or 100 basis points with financial futures markets predicting a 75 basis point hike is most likely.
The Committee will likely strongly hint at additional fed funds rate increases at the November and December meetings.
The 9:00 central time August existing home sales report is expected to be 4.7 million.
INTEREST RATE MARKET FUTURES
The Fed is expected to deliver a third consecutive 75 basis point increase today, but some analysts believe it could raise the fed funds rate by a full percentage point.
According to financial futures markets, there is an 82.0% probability that the Federal Open Market Committee will hike its fed funds rate by 75 basis points and an 18.0% probability that the rate will increase by 100 basis points today.
The inverted Treasury yield curve is becoming more inverted and continues to warn of economic risks ahead.
The bearish influence of a hawkish Federal Reserve is overpowering the bullish influence of a weakening economy.
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