RBA Hikes Rates More Than Expected

STOCK INDEX FUTURES

Stock index futures are lower after a profit warning from a large retailer and after Australia’s central bank increased its key interest rate more than expected.

Traders are watching economic data closely for clues about the Federal Reserve’s path for raising interest rates.

The 2:00 central time April consumer credit report is expected to show a $31.7 billion increase.

A key test for markets will be Friday’s release of the May consumer price index. The closely watched inflation gauge is expected to increase 8.2% in May from a year earlier, according to economists. This estimate is lower than the April actual figure of up 8.3%. Excluding food and energy, price growth is anticipated to cool slightly to an annual rate of 5.9% in May from 6.2% the previous month.

Stock index futures remain in a 7-day congestion pattern.

CURRENCY FUTURES

The S&P Global euro zone construction PMI fell to 49.2 in May from 50.4 in April. The reading was the first contraction in the construction sector in nine months, and the sharpest since February of last year.

The Swiss franc fell to the lowest in three weeks despite news that annual inflation rose to 2.9% in May, which is the highest in almost 14 years and well above forecasts.

The Japanese yen is lower as the Bank of Japan has remained committed to ultra-easy monetary policies, while many other central banks have begun hiking interest rates.

The Reserve Bank of Australia surprised traders by raising interest rates by twice as much as forecast at its policy meeting today. The central bank raised the cash rate by 50 basis points to 0.85%. Only three economists of 29 surveyed predicted half-point rise.

Australian consumer confidence dropped 4.1% over the week to its lowest level since mid-August 2020, according to a survey by ANZ Bank.

INTEREST RATE MARKET FUTURES

The Treasury will auction three-year notes today.

Federal Reserve officials have indicated they plan to raise interest rates by half a percentage point at next week’s policy meeting, and by the same amount again in July.

Financial futures markets are predicting there is a 92.9% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 7.1% probability that the  rate will increase by 75 basis points at the June 15 policy meeting.

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