Interest Rate Differentials Now Neutral

CURRENCY FUTURES

The U.S. dollar index firmed when the ADP employment report was released.

Interest rate differential expectations, which have been bearish for the U.S. dollar since late September, are now just neutral.

Producer price inflation in the euro area eased further to 27.1% year-on-year in November 2022, which is down from a revised 30.5% in the previous month and below market expectations of 27.5%.

A lower inflation rate in the euro zone puts pressure on the European Central Bank to be less hawkish.

The British Chambers of Commerce survey , which is the largest private-sector survey of business sentiment, said late on Wednesday that 36% of businesses expect lower profits this year, compared with 34% who expect an increase. The proportion anticipating higher sales over the next 12 months dropped to 44% from 54% six months ago. This survey took place from November 7 to November 30, 2022.

STOCK INDEX FUTURES

Stock index futures closed higher yesterday despite the hawkish tone to the minutes from the December 14 Federal Open Market Committee meeting.

Prices are lower today in response to this morning’s economic reports.

According to global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc. U.S. based employers announced 43,651 job cuts in December of 2022, falling 43% from the 76,835 announced in November. However, this up 129% from the 19,052 cuts announced in the same month in 2021.

The ADP employment report for December showed an increased of 235,000 when up 145,000 was expected.

Jobless claims in the week ended December 31 were 204,000 when 225,000 were anticipated.

The 8:45 central time December PMI composite final is estimated to be 44.4.

INTEREST RATE MARKET FUTURES

Futures closed higher yesterday despite the hawkish FOMC minutes.

However, prices are lower today in response to the ADP employment change report.

Federal Reserve speakers today are Raphael Bostic at 8:20 and James Bullard at 12:20.

According to financial futures markets currently, there is a 61.0% probability that the Federal Open Market Committee will increase its fed funds rate by 25 basis points at the February 1  policy meeting and a 39.0% probability that the rate will be hiked by 50 basis points.

 

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