BoJ Retains Accomodation

STOCK INDEX FUTURES

May industrial production increased 0.2% when up 0.4% was expected and capacity utilization was 79.0 when79.2% was anticipated.

The 9:00 May leading indicators report is predicted to show a decline of 0.4%.

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

The rate of inflation remains the key driver to this market. A likely bottom could come when there are indications that the rate of inflation is slowing, which is not the case currently. However, when there are signs that inflation is moderating it could influence the Federal Reserve to become less hawkish.

CURRENCY FUTURES

The U.S. dollar index is higher as interest rate differentials are once again turning more favorable to the greenback.

The Bank of Japan left its key short term interest rate unchanged at -0.1% and 10-year bond yields around 0% during its policy meeting today by an 8-1 vote, as widely expected. The board also said it would offer to buy unlimited amounts of bonds to defend an implicit 0.25% cap, repeating its guidance on market operations it made in April.

The pace of Canadian home price growth slowed in May, edging off April’s record high.

INTEREST RATE MARKET FUTURES

Financial futures markets are predicting there is a 90.9% probability that the Federal Open Market Committee will hike its fed funds rate by 75 basis points and a 9.1% probability that the  rate will increase by 50 basis points at the July 27 meeting.

Currently the Fed’s focus is clearly on inflation, while a slowing economy will be problem for the Fed to deal with later.

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