Written Commentary
INTEREST RATE MARKET FUTURES
Futures advanced when the 7:30 June personal income report was released, which was slightly bullish on balance.
In addition, there is underlying support for futures across the board on the belief that the Federal Open Market Committee is on a path toward accommodation policies.
There is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 5.25% to 5.50% at its July 31 policy meeting.
However, financial futures markets are now pricing in three 25 basis point cuts in the fed funds rate later this year.
There is almost a 100% 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 at the November 7 meeting is 67%, and there is a 63% chance of another 25 basis point rate cut at the December 18 meeting.
Higher prices are likely for futures.
CURRENCY FUTURES
The U.S. dollar index is a little lower in light of the personal income report, which was slightly bearish on balance for the greenback.
The U.S. dollar is likely to drift lower due to prospects of a more aggressively accommodative Federal Reserve.
Traders increased their expectations for two additional interest rate cuts from the European Central Bank this year to a 90% probability from less than 80% before the recently reported European PMI data.
Yesterday the Japanese yen hit its highest level against the U.S. dollar since May 6 as pressure remains for the Bank of Japan to hike interest rates at its July 31 policy meeting.
Since the first week in July traders have been unwinding long U.S. dollar – short Japanese yen carry trades. The Japanese yen is likely to remain firm ahead of the month-end BoJ policy meeting.
STOCK INDEX FUTURES
Stock index futures are higher in light of better than expected corporate earnings.
Personal income in June on a month-to-month basis increased 0.2% when a gain of 0.4% was expected, and the core PCE price index on a month-to-month basis increased 0.2% when up 0.1% was anticipated.
The 9:00 central time July consumer sentiment index is estimated to be 66.0.
Yesterday’s July Kansas City Federal Reserve manufacturing index was -13 when -5 was predicted.
Coming easier credit policies from the Federal Reserve will ultimately rescue this market.
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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 information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. 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.
