Housing Starts Lower Than Expected
STOCK INDEX FUTURES
Stock index futures are mixed as investors look toward the Federal Reserve’s next monetary policy decision this week and other major central bank policy meetings.
Yesterday’s September housing market index surprised at 45 when 50 was expected.
Today’s housing starts report showed starts in August were 1.283 million when 1.435 million were anticipated and building permits were 1.543 million when 1.440 million were estimated.
Now is a good time to lighten up on long positions in the U.S. dollar index in light of U.S. labor strike activity and debt ceiling issues.
However, in the longer term, interest rate differential expectations remain favorable for the greenback, especially against the European currencies, since the U.S. economy appears to be holding up relatively well compared to economies in Europe.
Annual inflation rate in the euro area was revised lower to 5.2% in August 2023 from an initial estimate of 5.3%, which marks the lowest reading since January 2022.
On Thursday the Bank of England is anticipated to announce its 15th consecutive interest rate increase, raising its key rate by 25 basis points to 5.50%, which is the highest since 2008.
On Friday, the Bank of Japan is likely to keep its key rate unchanged at negative 0.1%. Japan has had negative interest rates since early 2016.
INTEREST RATE MARKET FUTURES
Futures are mixed to lower.
The Treasury will auction 20-year bonds today.
The Federal Open Market Committee concludes its two-day meeting on Wednesday. Financial futures markets are overwhelmingly pricing in no change in the fed funds rate, which currently stands at 5.25%-5.50%.
Financial futures markets are predicting there is a 99% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its Wednesday policy meeting, and there is a 1% probability of a 25 basis point increase.
There is a 29% probability that the FOMC will hike its fed funds rate by 25 basis points to 5.50%-5.75% at its November 1 policy meeting. Late last week the probability of a 25 basis points increase in November was 40% and yesterday the probability was 31%.
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