Indices Pressured by Fed Chair Remarks

STOCK INDEX FUTURES

Yesterday stock index futures advanced after the Federal Open Market Committee delivered the most dovish policy statement in almost one year, hinting that smaller rate hikes lie ahead. However, futures quickly declined with follow-through today when Fed Chair Powell at his press conference basically told markets interest rates could go higher than previously projected.

U.S. based employers announced 33,843 job cuts in October of 2022, which is a 13.0% increase from the 29,989 cuts in September, according to Challenger, Gray & Christmas, Inc.

Jobless claims in the week ended October 29 were 217,000 when 222,000 were expected.

The 8:45 central time October PMI composite final is anticipated to be 46.6.

The 9:00 September factory orders report is predicted to show a 0.3% increase and the 9:00 October Institute for Supply Management services index is estimated to be 55.4.

Stock index futures are likely to recover this afternoon.

CURRENCY FUTURES

The U.S. dollar index is higher after markets were surprised by Fed Chair Powell when in his press conference he said interest rates will be higher than previously expected and that it is very premature to talk about pausing the rate-hike cycle.

The euro zone unemployment rate declined slightly in September. The euro zone jobless rate fell to 6.6% in September from a revised reading of 6.7% in August, which matched economists’ predictions.

The Bank of England raised its key interest rate by 75 basis points as expected to 3.0% from 2.25%, which is its largest increase since 1989. The British pound declined when the Monetary Policy Committee pushed back aggressively against hawkish market expectations ahead, warning that following that path would induce a two-year recession.

INTEREST RATE MARKET FUTURES

Markets were surprised yesterday by Powell’s hawkish message in his press conference following a dovish on balance FOMC policy statement.

There are no major Federal Reserve speakers scheduled for today.

According to financial futures markets currently, there is a 52.0% probability that the Federal Open Market Committee will increase its fed funds rate by 50 basis points at the December 14  meeting and a 48.0% probability that the rate will be hiked by 75 basis points.

Recent moves by other central banks are in contrast to what Powell said yesterday. Other major central banks have either softened their hawkish tone as did the Bank of England today and recently the European Central Bank, or delivered smaller than expected interest rate hikes.

The Bank of Canada and the Reserve Bank of Australia each increased their benchmark rates by less than economists had expected at their most recent policy meetings.

 

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