Less Hawkish Fed Dominates Trade
STOCK INDEX FUTURES
Stock index futures closed sharply higher yesterday with follow-through gains today, after Federal Reserve Chair Jerome Powell, who in a speech on Wednesday, signaled that it might be appropriate for the U.S. central bank to slow its pace of monetary policy tightening. Powell said he sees the central bank in a position to reduce the size of rate hikes as soon as at the December meeting.
This echoes recent statements from other central bank officials and comments at the November Fed policy meeting,
U.S. based employers announced 76,835 job cuts in November of 2022, which is the most since January of 2021, and compared to 33,843 in October, according to Challenger, Grey and Christmas, Inc.
Jobless claims in the week ended November 26 were 225,000 when 238,000 were expected.
Personal income in October increased 0.7% when up 0.4% was anticipated.
The 8:45 central time November PMI manufacturing final is estimated to be 47.6.
The 9:00 November Institute for Supply Management manufacturing index is predicted to be 49.9 and the 9:00 October construction report is anticipated to show a 0.1% decline.
The fundamentals and technicals for stock index futures are improving.
The U.S. dollar index is lower and is at its lowest level since August 15, as interest rate differential expectations continue to turn against the greenback.
Lower prices are likely for the U.S. dollar.
The euro currency is higher on news that the unemployment rate in the euro area fell to a new record low of 6.5% in October of 2022 from 6.6% in the prior month. This is slightly below market estimates of 6.6%.
German retail sales were down 2.8% on the month in October when a decline of 0.6% was expected.
U.K. house prices fell by the most in over two years in November and by more than predicted.
INTEREST RATE MARKET FUTURES
Futures are higher in response to yesterday’s dovish interest rate comments from Fed Chair Powell.
A majority of Federal Reserve policymakers have been hinting that soon it will be appropriate to slow the pace of interest rate hikes. At the November 2 policy meeting the Fed delivered its fourth straight 75 basis point rate hike and pushed borrowing costs to the highest since 2008.
Federal Reserve speakers today are Lorie Logan at 8:25, Michelle Bowman at 8:30, Neel Kashkari at 9:00 and Michael Barr at 2:00.
According to financial futures markets currently, there is a 79.0% probability that the Federal Open Market Committee will increase its fed funds rate by 50 basis points at the December 14 policy meeting and a 21.0% probability that the rate will be hiked by 75 basis points. This is a dramatic change in expectations from early November when there was some scattered talk that the FOMC could hike the fed funds rate by as much of 100 basis points this month.
The fundamental and technical aspects have turned more supportive.
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