Written Commentary
STOCK INDEX FUTURES
Stock index futures quickly declined when the April producer price index came in at up 0.5% when a 0.3% increase was expected.
The April National Federation of Independent Small Business Optimism Index improved to 89.7, slightly recovering from a more than 12-year low of 88.5 in March and beating estimates of 88.1.
Federal Reserve Chair Jay Powell will speak at 9:00 AM central time.
It is likely that futures will recover from the morning pressure that was caused by the bearish producer price index report.
The fundamentals and technicals are becoming more bullish.
CURRENCY FUTURES
The U.S. dollar index quickly advanced when the larger than expected increase in the producer price index was reported. However, gains in the greenback are unlikely to follow through.
The ZEW Indicator of Economic Sentiment for Germany increased to 47.1 in May 2024, which is the highest since February 2022, from 42.9 in April, and beating predictions of 46. The current conditions subindex also improved to -72.3 from -79.2, which compares to estimates of -75.8.
The release of U.K. labor data increased probabilities that the Bank of England will soon reduce interest rates. The unemployment rate increased for the third consecutive month, while wage growth remained unchanged at 6.0%, which was in line with the Bank of England’s predictions. The probability of an interest rate cut by the BoE in June increased to 50%.
The Japanese yen weakened past 156 per U.S. dollar, hitting its lowest levels in two weeks and prompting fears that Japanese authorities could intervene again to support the yen.
INTEREST RATE MARKET FUTURES
Futures quickly declined when the producer price index report was released.
Other Federal Reserve speakers today are Lisa Cook at 8:10 AM and Jeffrey Schmid at 8:10 PM.
Financial futures markets are predicting there is a 63% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.
It is likely that futures will recover from the morning pressure that was inspired by the bearish producer price index report.
The fundamentals and technicals have improved for futures, especially at the long end of the yield curve.
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