Interest Rate Market Futures May Be Bottoming

STOCK INDEX FUTURES

Stock index futures were sharply higher yesterday despite hawkish remarks from the head of the Federal Reserve. Fed Chair Powell said the central bank would not hesitate to keep raising interest rates even if it involves moving past broadly understood neutral levels.

Prices are lower today as corporate earnings reports are coming in on the weak side, especially in the retail sector.

Mortgage applications in the week ended May 13 fell 11.0%, which is the biggest decline in three months.

Housing starts in April were 1.724 million when 1.728 million were expected and building permits were 1.819, which compares to the anticipated 1.815 million.

CURRENCY FUTURES

The U.S. dollar index rebounded in light of the hawkish Federal Reserve stance.

Interest rate differential expectations suggest higher prices are likely for the greenback.

The euro currency is lower today, giving back some of yesterday’s gains.

Lower prices are likely for the euro currency.

The British pound is lower despite news that the U.K.’s annual rate of inflation jumped to a forty-year-high in April. Consumer prices in April were 9.0% higher than a year earlier, which is a jump from 7.0% in March and the highest inflation rate since March 1982.

The Japanese yen is higher on news that the Japanese economy contracted 0.2% quarter-to-quarter in the first quarter of 2022, compared with the market consensus of a 0.4% decline and after a downwardly revised 0.9% growth in the fourth quarter. This was the second contraction in the last three quarters.

INTEREST RATE MARKET FUTURES

The Treasury will auction 20-year bonds today.

Patrick Harker of the Federal Reserve will speak at 3:00.

Financial futures markets are predicting there is an 87.0% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 13.0% probability that the  rate will increase by 75 basis points at the June 15 policy meeting.

In a Tuesday interview Federal Reserve Chairman Jerome Powell said the central bank was moving rapidly to combat inflation. Mr. Powell said he remains confident that the U.S. central bank can increase rates and deal with inflation without sending the economy into recession.

Despite yesterday’s hawkish comments from Fed Chair Powell, financial market futures have recently held up very well, suggesting the Fed may not be quite as hawkish going forward and other central banks, such as the European Central Bank and the Bank of England,  may follow suit and not be as hawkish as well.

The interest rate market futures appear to be making a bottom on the charts.

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