Hawkish Fed Continues to Dominate
STOCK INDEX FUTURES
Stock index futures are lower due to a recent shift to a more hawkish on balance Federal Reserve, along with ongoing concerns about the banking industry.
Retail sales in July increased 0.7% when up 0.4% was expected.
The August Empire State manufacturing index was negative 19 when negative 0.4% was anticipated.
Import prices in July increased 0.4% when a gain of 0.2% was predicted, and export prices increased 0.7% when up 0.1% was predicted.
The 9:00 central time August housing market index is estimated to be 56, and the 9:00 June business inventories report is expected to show a 0.2% increase.
Traders are awaiting Wednesday’s release of the minutes from the Federal Reserve’s last policy meeting, in which the central bank resumed its rate-hiking campaign.
The U.S. dollar index is lower.
Germany’s economic outlook improved more than predicted in August. The ZEW institute’s index of economic sentiment for Germany improved to minus 12.3 in August from minus 14.7 in July. Economists expected a more moderate improvement to minus 14.4.
However, the ZEW’s separate index for measuring the current economic conditions in Germany declined further in August to minus 71.3 from minus 59.5 in July. Economists anticipated a decline to minus 62.0.
Average wages, excluding bonuses, in the U.K. increased 7.8% year-on-year, which is the most on record and is substantially above forecasts of 7.4%.
The Japanese economy advanced 1.5% quarter-to-quarter in the second quarter of 2023, beating market forecasts of a 0.8% increase.
Today’s release of the Reserve Bank of Australia’s July policy meeting minutes were considered to be dovish, which suggests the Reserve Bank of Australia will keep rates steady for a third straight month in September.
INTEREST RATE MARKET FUTURES
The newest fundamental in recent days is some Federal Reserve officials are once again talking about the need for an additional fed funds rate hike.
Futures are mostly lower with Treasury yields continuing to trend higher.
Despite the recent more hawkish Federal Reserve, most market participants see the Federal Reserve leaving its fed funds rate unchanged when it meets next month.
Financial futures markets are predicting there is an 86% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 14% probability of a 25 basis point increase.
While Federal Reserve officials close in on the end of their tightening campaign, the debate is shifting from how high interest rates need to go to how long they should remain at elevated levels.
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