Fed Accommodation in Late 2023?

STOCK INDEX FUTURES

Stock index futures are higher as signs of slowing economic growth and falling commodity prices eased expectations over how high the Federal Reserve will raise interest rates to rein in inflation.

The 9:00 central time May new home sales report is expected to show 587,000 and the 9:00 June consumer sentiment index is anticipated to be 50.2.

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 could influence the Federal Reserve to become less hawkish.

CURRENCY FUTURES

The euro currency is lower on news that business confidence in Germany worsened in June.

The Ifo business climate index declined to 92.3 points in June from 93.0 points in May, according to data from the Ifo Institute. Economists expected the index to come in at 92.5.   The index of the current situation fell slightly to 99.3 in June from 99.6 in May, while the gauge assessing companies’ expectations declined 85.8 from 86.9. The Ifo index is based on a poll of approximately 9,000 companies in manufacturing, services, trade and construction.

Inflation in Japan is raising pressure on the Bank of Japan to reconsider its low interest rate policy. Inflation in Japan remained above the central bank’s target for a second successive month.

Overall consumer prices increased 2.5% from a year earlier in May, which matched the pace in April, and was the fastest increase since 1991, excluding periods immediately after sales tax increases.

INTEREST RATE MARKET FUTURES

Mary Daly of the Federal Reserve will speak at 3:00.

This year the Federal Open Market Committee will continue on its path of hiking the fed funds rate.

There is a 98.1% probability that the Federal Open Market Committee will hike its fed funds rate by 75 basis points and a 1.9% probability that the rate will increase by 50 basis points at the July 27 meeting.

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

Economic growth is slowing down maybe even sooner than expected, which should allow the Fed to soften at some point. Financial futures markets are now predicting the Fed could return to accommodative late in 2023.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

Latest News & Market Commentary

Explore the latest edition of The Ghost in the Machine

Explore Now