Negative NY Fed Index Pressures Dollar

STOCK INDEX FUTURES

Stock index futures are higher despite mixed earnings results from big banks.

European stock markets gained traction, as investors welcomed news that U.K. Chancellor Jeremy Hunt is reversing almost all of the tax measures set out in Prime Minister Truss’s mini-budget.

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The October Empire State Manufacturing index was negative 9.1 when negative 2.5 was expected, and compared to last month’s figure of negative 1.5. The New York Federal Reserve conducts this monthly survey of manufacturers in New York state, which represents a variety of industries.

The technicals are becoming more supportive.

CURRENCY FUTURES

The U.S. dollar index depreciated sharply against the British pound after the new U.K. chancellor  reversed most of the mini-budget, reassuring markets that the U.K. will return to a more sustainable borrowing path.

The U.S dollar has been underperforming the news in recent weeks.

The International Monetary Fund said it would be right for the European Central Bank to “normalize its monetary policy by the end of the year and then tighten next year,” despite weaker economic prospects.

The Japanese yen remains near the 32-year lows seen last Friday as the market weighs the prospect of the Bank of Japan intervening again. It is almost a month since Japanese authorities sold the U.S. dollar and bought yen to provide some price stability for the currency. At that time the high had been 145.90 and it is now trading above 148, as the market focuses on the psychologically significant level at 150.

Bank of Japan Governor Kuroda recently said it is not appropriate for Japan to raise interest rates now.

INTEREST RATE MARKET FUTURES

Futures are being supported by the substantially weaker than anticipated October Empire State Manufacturing index.

According to financial futures markets, there is a 95.0% probability that the Federal Open Market Committee will increase its fed funds rate by 75 basis points at the November 2 policy meeting and a 5.0% probability that the rate will be hiked by 50 basis points.

Last Thursday there was a 2.0% probability that the FOMC could hike its fed funds rate by 100 basis points.

 

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