April CPI Increases More Than Expected

STOCK INDEX FUTURES

U.S. stock index futures snapped a three-day losing streak Tuesday and were higher in the overnight trade. However, prices quickly declined when the larger than expected April consumer price index was reported.

The April consumer price index increased 0.3% when a gain of 0.2% was expected. The annual inflation rate in the U.S. slowed to 8.3% in April from a 41-year high of 8.5% in March, but less than market forecasts of 8.1%.

Mortgage applications in the U.S. were up 2.0% in the week ended May 6 and applications to purchase a home increased 4.5%, while those to refinance a mortgage loan fell 2.0%.

The May Atlanta Federal Reserve business inflation expectations report will be released at 9:00 central time. In April the figure was 3.8%.

The dominant influences remain geopolitical tensions, the hawkish Federal Reserve and  economic headwinds.

CURRENCY FUTURES

The U.S. dollar index quickly advanced when the larger than expected April consumer price index was reported.

Interest rate differential expectations suggest higher prices are likely for the greenback.

The euro currency advanced in the overnight trade when European Central Bank President Lagarde said the first rate hike will take place sometime after the end of net asset purchases. The ECB confirmed during its April meeting that it will conclude its net asset purchases in the third quarter. Investors are currently expecting the ECB to raise rates by 25 basis points in both July and September, while delivering another increase at the end of the year.

Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.

INTEREST RATE MARKET FUTURES

Futures fell across the board when the bearish April consumer price index was reported.

Raphael Bostic of the Federal Reserve will speak at 11:00.

The Treasury will auction 10-year notes today.

Financial futures markets are predicting there is an 86.2% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 13.8% probability that the  rate will increase by 75 basis points at the June 15 policy meeting.

Longer term, lower prices are likely across the board for the interest rate market futures as most major central banks are anticipated to tighten credit policies this year.

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