Written Commentary
CURRENCY FUTURES
Yesterday the U.S. dollar index advanced to its highest level since July 3. The greenback is higher today in light of this morning’s mostly stronger than predicted economic reports.
Much of the recent strength in the U.S. dollar is linked to flight to quality buying due to geopolitical tensions in the Middle East and favorable interest rate differentials.
The fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.
The euro currency firmed following unexpectedly strong growth figures from the euro zone, which led investors to reduce expectations for European Central Bank interest rate cuts. The euro zone economy expanded by 0.4% on a quarter-to-quarter basis in the third quarter, which is double the growth of the second quarter and exceeded market forecasts of a 0.2% increase.
Traders still anticipate the ECB will lower its key deposit facility rate by 25 basis points in December, marking the fourth interest rate cut following reductions in October, September and June.
The Bank of Japan will conclude its policy meeting tomorrow, and the consensus view is that the central bank will keep its key interest rate unchanged at 0.25%. Most economists now see no interest rate hike until the first quarter of 2025.
STOCK INDEX FUTURES
Stock index futures are lower due to the bearish interest rate implications of this morning’s economic reports.
The October ADP employment report showed an increase of 233,000 when a gain 115,000 was expected.
Gross domestic product in the third quarter increased 2.8% when a gain of 3.0% was anticipated, and personal consumption expenditures increased 3.7% when up 3.0% was forecast.
The 9:00 central time September pending home sales index is predicted to be up 1.0%.
INTEREST RATE MARKET FUTURES
Futures are mixed. However, yesterday the December 30-year U.S. Treasury bond futures declined to the lowest level since July 2.
Currently there is a 95% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 5% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.
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