Hawkish Fed Pressures Stock Index Futures

STOCK INDEX FUTURES

Stock index futures are lower after Federal Reserve officials reinforced a tighter policy message over the weekend.

The 8:45 central time July PMI manufacturing index is expected to be 52.3.

The 9:00 July Institute for Supply Management manufacturing index is anticipated to be 52.2, and the June construction spending report is estimated to show a 0.2% increase.

Futures are likely to at least partially recover this afternoon.

CURRENCY FUTURES

The unemployment rate in the euro area was unchanged at 6.6% for a second consecutive month in June of 2022, which was a record low reading and in line with market forecasts.

The euro zone manufacturing sector fell deeper into contraction in July. The S&P Global euro zone manufacturing PMI fell below the 50.0 mark in July to 49.8 from 52.1 in June, signaling the first deterioration in overall manufacturing sector conditions for slightly over two years.

The British pound advanced to its highest since late June as traders await the Bank of England’s monetary policy decision on Thursday. Financial futures markets are predicting there is an 80% chance of a 50 basis point hike in its key interest rate, which would be the biggest increase in 27 years, pushing borrowing costs to 1.75%, the highest level since 2009.

Gains in the pound were limited by news that the U.K. manufacturing sector started the third quarter on a weak footing with output contracting for the first time in over two years. The S&P Global / CIPS U.K. manufacturing purchasing managers’ index fell to a 25-month low of 52.1 in July from 52.8 in June.

INTEREST RATE MARKET FUTURES

The 30-year Treasury bond futures advanced to three-month highs on Friday. However, prices are lower today after Federal Reserve officials made hawkish comments over the weekend.

According to financial futures markets, there is a 68.5% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 31.5% probability that the rate will increase by 75 basis points at the September 21 policy meeting.

Higher prices are likely across the board for the interest rate market futures as the U.S. economy continues to weaken.

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