July PPI Hotter Than Expected

STOCK INDEX FUTURES

Yesterday, futures prices advanced in the morning hours, but came under pressure in the afternoon when Federal Reserve Bank of San Francisco President Mary Daly said the U.S. central bank has more work to do to control inflation and the Fed is fully committed to bringing inflation back down to its 2.0% target.

There was additional selling today on news that the July producer price index increased 0.3% when up 0.2% was expected, and the July producer price index, excluding food and energy, was up 0.3% when a gain of 0.2% was anticipated.

The 9:00 central time August consumer sentiment index is predicted to be 71.3.

PPI

CURRENCY FUTURES

The U.S. dollar index is higher in response to the larger than estimated increase in the U.S. producer price index.

The British pound advanced on news that the U.K. gross domestic product increased 0.2% in the second quarter, against the consensus view for an unchanged reading.

This lays the groundwork for more interest rate hikes from the Bank of England.

INTEREST RATE MARKET FUTURES

There was relatively weak demand for yesterday’s auction of 30-year bonds.

This sale was the biggest test of this week’s series of auctions when the Treasury sold a combined total of $103 billion of new 3-, 10- and 30-year debt.

Most market participants see the Federal Reserve leaving its fed funds rate unchanged when it meets next month.

Financial futures markets are predicting there is an 88% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 12% probability of a 25 basis point increase.

 

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