By Alan Bush | Senior Financial Economist at ADMIS
U.S. stock futures advanced yesterday after Federal Reserve Chairman Jerome Powell in his testimony to the House Financial Services Committee set the stage for the central bank to lower interest rates.
Fed Chairman Powell said the economic outlook has not improved in recent weeks, and “it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
There was additional support for stock index futures yesterday when the minutes from the Fed's June 19 meeting were released and showed many central bank officials saw a stronger case for a rate cut.
At 9:00 central time Fed Chairman Powell will deliver his semiannual monetary policy testimony to the Senate Banking Committee.
The consumer price index increased 0.1% in June from the prior month, which compares to expectations of unchanged and the consumer price index, excluding the volatile food and energy categories, rose 0.3% when an increase of .2% was anticipated.
Jobless claims fell last week to the lowest level since April. Initial jobless claims decreased 13,000 to 209,000 in the week ended July 6. Economists expected 224,000 new claims.
My view remains that the global reflation scenario is on track and easier credit conditions from most of the world’s central banks, including the Federal Reserve, are coming and will be the dominant fundamental that supports stock index futures in the long term.
The U.S. dollar index fell yesterday after Fed Chairman Powell’s dovish testimony and there is follow-through weakness today.
Interest rate differential expectations have turned slightly bearish for the greenback in light of Fed Chair Powell’s dovish congressional testimony.
The euro currency is higher even though the minutes of the European Central Bank’s monetary policy meeting of the governing council held on June 5 and 6 indicated the central bank will consider injecting new stimulus into the euro zone economy as a result of weak inflation data and increasing global uncertainties.
In addition to Fed Chair Powell, other Federal Reserve speakers today are New York Federal Reserve Bank President John Williams at 10:00 and at 12:30, Federal Board of Governors Vice Chairman for Supervision Randal Quarles at 12:30 and Minneapolis Federal Reserve Bank President Neel Kashkari at 4:00.
The Treasury will auction 30 year bonds.
Financial futures markets are predicting there is almost a 100% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points or more at its July 30-31 policy meeting. A second rate cut is anticipated by financial futures markets later this year.
In the longer term, higher prices are likely for futures, as most major central banks are likely to embark on a new round of accommodation.
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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 risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does not currently maintain positions in the commodities specified within this report. 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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