FOMC in Focus

CURRENCY FUTURES

The U.S. dollar index is higher today as traders focus on this week’s Federal Open Market Committee meeting. However, once the FOMC meeting is out of the way selling pressure is likely to return to the greenback.

Granite Columns

The euro currency is lower, holding below parity for the third session, despite news that  consumer prices in the euro zone accelerated to a record 10.7% in October, soaring above expectations of 10.2%. The inflation rate was 9.9% in September.

GDP in the euro zone expanded by 0.2% in the third quarter, following  0.7% growth in the second quarter, which is in line with market expectations and at the slowest growth race in six quarters.

The number of mortgage approvals in the U.K. being made to home buyers declined in September, as borrowers’ costs increased. The Bank of England said mortgage approvals for house purchases decreased to 66,800 in September from 74,400 in August.

In a recent survey a majority of economists said they expect the Bank of England  to hike its key interest rate by 75 basis points at the next policy meeting on November 3.

STOCK INDEX FUTURES

The 8:45 central time October Chicago PMI is expected to be 47.3.

The 9:30 October Dallas Federal Reserve manufacturing index is anticipated to be negative 18.0, which compares to negative 17.2 in September.

Prospects of a less hawkish Federal Reserve later this year have supported stock index futures in recent weeks.

The technicals are becoming more supportive.

The upside for S&P 500 futures may be limited in advance of the November 2 Federal Open Market Committee meeting.

INTEREST RATE MARKET FUTURES

There are no major Federal Reserve speakers scheduled for today.

The central bank imposes a quiet period starting the second Saturday before a Federal Open Market Committee meeting during which officials refrain from commenting on the economy and monetary policy. The Fed refers to this as a “Blackout Period.”

According to financial futures markets currently, there is an 89.0% probability that the Federal Open Market Committee will increase its fed funds rate by 75 basis points at the November 2 policy meeting and an 11.0% probability that the rate will be hiked by 50 basis points.

Just a few weeks ago there was a 2.0% probability of a 100 basis point hike.

Recent moves by other central banks suggest a dovish surprise is possible at the December FOMC policy meeting. The Bank of Canada and Reserve Bank of Australia each increased their benchmark rates by less than economists had expected at their most recent policy meetings. The European Central Bank was also perceived by traders to have been less aggressive.

 

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