Pressure on FOMC to be Less Hawkish
STOCK INDEX FUTURES
Mortgage applications fell 3.7% in the week ended September 23. Applications to refinance a home loan tumbled 10.9%.
Wholesale inventories in August increased 1.3% when up 0.4% was expected.
The 9:00 August pending home sales report is anticipated to be down 0.8%.
Futures are being supported by pressure on the Federal Reserve to be less hawkish.
The U.S. dollar index advanced to a new 20-year high today.
Interest rate differential expectations remain bullish for the greenback long term.
The euro currency continued to fall toward $0.95, a new 20-year low, and is down almost 20% so far on the year.
German October consumer sentiment was -42.5 compared to -36.8 in September. The forecast was -38.5.
The Bank of England today signaled that it would intervene to prop up the gilt market following the surge in bonds yields triggered by the government’s new fiscal package that was announced last Friday. The Bank of England said will carry out temporary purchases of long-dated U.K. government bonds from September 28 in order to restore orderly market conditions.
INTEREST RATE MARKET FUTURES
San Francisco Federal Reserve Bank President Mary Daly yesterday said the U.S. central bank is “resolute” about bringing down high inflation but also wants to do so “as gently as possible” so as not to drive the economy into a downturn.
Federal Reserve Bank of Minneapolis President Neel Kashkari said the U.S. central bank needs to tighten monetary policy until underlying inflation is declining, and then wait to see if it has done enough.
Some economists have begun to advocate for accepting a higher inflation target somewhere in the 3.0% or 4.0% range in order to avoid a severe downturn in the economy.
When presented with this possibility, St. Louis Fed President James Bullard said Tuesday it would be a bad idea and a “dangerous concept.”
Federal Reserve speakers today are Jerome Powell at 9:15, James Bullard at 9:10 and Charles Evans at 1:00.
The Treasury will auction 7-year notes today.
According to financial futures markets, there is a 47.6% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 52.4% probability that the rate will increase by 75 basis points at the November 2 policy meeting.
Yesterday the probability of a 75 basis point rate hike was 68.0%.
The inverted Treasury yield curve continues to warn of economic risks ahead.
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