Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher across the board.
Yesterday Federal Reserve Chair Powell, speaking before the Economic Club of Washington, said the central bank will not wait until inflation hits 2.0% before cutting interest rates.
Retail sales in June were unchanged when a 0.3% decline was expected.
Import prices in June were unchanged when down 0.1% was anticipated, and export prices declined 0.5% when a 0.1% drop was forecast.
The 9:00 central time July housing market index is predicted to be 43, and the May business inventories report is predicted to show a 0.4% increase.
The longer term fundamentals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
Futures are mixed. Some of the overnight gains were given back when the retail sales report was released. However, there was some support when a separate report showed a larger than expected decline in export prices.
Adriana Kugler of the Federal Reserve will speak at 1:45 PM.
Traders continue to believe the Federal Reserve will cut interest rates in September after last week’s weaker than anticipated consumer confidence report.
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 at its September 18 meeting.
In addition, the probability of an additional rate reduction from the FOMC has now been moved forward to the November 7 meeting where there is a 68% chance of another 25 basis point cut in the fed funds rate.
Futures at the short end of the yield curve are likely to lead the way higher for the interest rate futures complex.
CURRENCY FUTURES
The U.S. dollar index is higher and was supported by the unchanged U.S. retail sales report.
Economic sentiment in Germany worsened in July. The ZEW Indicator of Economic Sentiment, which tracks economic expectations for the coming six months, declined 5.7 points on the month to 41.8. Although the number was marginally better than the forecast of 41.0, it marks the first decline in the survey since July 2023.
The euro area trade surplus in May came in below market expectations. Imports fell 6.4%, while exports decreased 0.5%.
The European Central Bank will hold its policy meeting on Thursday, July 18. No change in interest rates is widely expected. However, financial futures markets are anticipating one or two interest rate cuts in 2024.
Analysis of Bank of Japan accounts suggests last week’s intervention to support the yen totaled approximately ¥2.1 trillion.
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