Fed Less Hawkish by Yearend?

STOCK INDEX FUTURES

Stock index futures advanced yesterday after the release of the minutes from the May 4 Federal Open Market Committee meeting.

The Fed’s minutes were less hawkish than feared and also hinted at a timeline for the Fed’s potential pause later this year.

Jobless claims in the week ended May 21 were 210,000 when 208,000 were expected.

The second estimate of the first quarter gross domestic product showed a 1.5% decline when down 1.3% was anticipated.

The 9:00 central time April pending home sales report is estimated to show a 1.5% decline and the 10:00 May Kansas City Federal Reserve manufacturing index is predicted to be 32.

S&P 500 futures are higher today and are now trading above a two-month downtrend line.

CURRENCY FUTURES

The U.S. dollar index is lower on the growing belief that the FOMC may be less hawkish later this year.

The Australian dollar is lower on news that Australian business investment in the first quarter was weaker than expected. Business investment fell 0.3% in the first quarter from the fourth quarter, according to the Australian Bureau of Statistics. Economists had expected business investment to rise 1.5% on quarter.

Bank of Japan Governor Haruhiko Kuroda said interest rate increases by the Federal Reserve will not necessarily cause the yen to weaken, saying various factors affect the currency market.

Interest rate differential expectations are turning neutral for the currency markets.

INTEREST RATE MARKET FUTURES

December 22 fed funds futures advanced to almost a 6-week high today, suggesting the FOMC later this year may be less hawkish than previously expected.

The Treasury will auction seven-year notes today.

Lael Brainard of the Federal Reserve will speak at 11:00.

The Federal Reserve is set to deliver a 50 basis point hike in the fed funds rate in both June and July.

Financial futures markets are predicting there is a 95.9% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 4.1% probability that the  rate will increase by 75 basis points at the June 15 policy meeting.

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