Hawkish Fed Dominate Financial Markets

STOCK INDEX FUTURES

Stock index futures are lower after hawkish comments from U.S. Federal Reserve Governor Christopher Waller. He said that until there is a substantial reduction in inflation, 50 basis point hikes are on the table at every Fed meeting.

This is in contrast to last week when the release of the Fed’s May 4 policy meeting on Wednesday indicated the Federal Open Market Committee would hike the fed funds rate by 50 basis points at the June and July meetings but could pause its fed funds rate hike schedule later this year.

The 8:45 central time May Chicago PMI is expected to be 57.1.

The 9:00 May consumer confidence index is anticipated to be 104.0 and the 9:30 May Dallas Federal Reserve manufacturing index is predicted to be 2.6.

I think stock index futures are overreacting to Christopher Waller’s comments and a recovery is likely later today.

CURRENCY FUTURES

After the U.S. dollar index fell to a three-week low last week, it rebounded today due to Christopher Waller’s hawkish interest rate commentary.

The greenback will probably give back some of the overnight price gains later today.

The euro currency is lower  despite news that the annual inflation rate in the euro area increased to 8.1% in May, a record high, and well above market forecasts of 7.7%.

Canada’s first quarter gross domestic product increased 3.1% when a gain of 5.5% was estimated.

INTEREST RATE MARKET FUTURES

Financial futures markets are predicting there is a 96.7% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 3.2% probability that the  rate will increase by 75 basis points at the June 15 policy meeting.

The interest rate market futures appear to be making a bottom on the charts, and the fundamentals are improving.

I think futures have overreacted on the downside today to Christopher Waller’s hawkish comments and at least a partial recovery is likely.

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