Written Commentary
CURRENCY FUTURES
The US dollar index is slightly lower and is showing limited reaction to increasing political uncertainties in the US.
The European Central Bank recently left its policy unchanged, with President Christine Lagarde stating that the next policy decision on September 12 is “wide open.”
A European Central Bank spokesman said the market pricing of two interest rate cuts by year-end is not entirely misplaced.
The Japanese yen rallied approximately 2.0% over the past two weeks due to suspected Bank of Japan intervention.
On Friday, Tokyo inflation figures for July could push the Bank of Japan into an interest rate increase at its July 31 policy meeting to restore price stability and support the yen.
The Bank of Canada will hold its policy meeting on Wednesday.
STOCK INDEX FUTURES
Stock index futures are higher across the board.
The June Chicago Federal Reserve national activity index was 0.05 when 0.10 was expected.
U.S. economic reports this week include second quarter gross domestic product, flash PMIs and the PCE price index.
The longer term fundamentals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
There are no Federal Reserve speakers with the Federal Reserve’s blackout beginning this weekend. The ‘blackout’ policy from the Federal Reserve limits the extent that Federal Open Market Committee members and staff can speak publicly or grant interviews.
There is a 95% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 5.25% to 5.5% at its July 31 policy meeting.
However, there is a 96% probability that the FOMC 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 up to the November 7 meeting where there is a 55% chance of another 25 basis point cut in the fed funds rate.
Higher prices are likely for futures.
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