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FOMC Removing Some Accommodation

STOCK INDEX FUTURES

U.S. stock index futures advanced to record highs.

Recent gains are due to better than expected third quarter corporate earnings reports and despite ongoing supply chain challenges and elevated inflationary pressures.

The broad market indexes hit record highs Wednesday despite news that the Federal Reserve approved plans to start scaling back its bond-buying stimulus program.

U.S. based employers announced 22,822 job cuts in October, which is the highest reading in five months.

Jobless claims in the week ended October 30 were 269,000 when 277,000 were expected.

Despite central banks removing some accommodation, the dominant fundamentals remain supportive for stock index futures.

CURRENCY FUTURES

Producer prices in the euro area jumped 2.7% in September, which is the largest monthly increase since at least January 1995 and is well above market expectations of 2.2%.

The British pound is sharply lower after the Bank of England surprised investors when it decided to leave its benchmark interest rate unchanged.

The Bank of England voted by a majority of 7-2 to hold its benchmark interest rate at a record low of 0.1% at its policy meeting today and by a majority of 6-3 to leave its bond-buying program unchanged. The central bank also said that it would probably become necessary to increase interest rates over coming months in order to return inflation to its 2.0% target.

INTEREST RATE MARKET FUTURES

The Federal Reserve approved plans to begin scaling back its bond-buying stimulus program this month and end it by June. The Fed will reduce its bond purchases by $15 billion a month in November and by an additional $15 billion in December, the central bank said Wednesday. In addition, it said similar reductions in the pace of net purchases “will likely be appropriate each month,” though officials will be prepared to adjust that pace “if warranted by changes in the economic outlook.”  The Fed has been buying at least $120 billion a month in Treasury and mortgage securities.

In advance of yesterday’s Federal Open Market Committee meeting economists expected the Federal Reserve would announce a $15 billion reduction in the central bank’s monthly asset purchases and leave interest rates unchanged. The fed funds target range currently stands at zero to 25 basis points.

Fed Chairman Jerome Powell played down the prospect of an imminent turn to raising interest rates when he said the Fed can be patient on raising rates and now is not the time for the Fed to raise interest rates.

Randal Quarles of the Federal Reserve will speak at 12:50 central time.

Expect higher prices for the 30-year Treasury bond futures now that the FOMC meeting is out of the way.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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