Written Commentary
STOCK INDEX FUTURES
Stock index futures were mostly higher in the overnight trade. However, prices quickly declined when the May employment report was released, which put pressure on the Federal Reserve to be slow to pivot to accommodation.
Nonfarm payrolls in May increased 272,000 when a gain of 182,000 was expected. The unemployment rate increased to 4.0% when 3.9% was anticipated. Private payrolls were up 229,000 when a gain of 168,000 was estimated, and average hourly earnings were up 0.4% against the estimated increase of 0.3%.
The 9:00 central time April wholesale inventories report is anticipated to show a 0.2% increase.
Futures are likely to at least partially recover today.
CURRENCY FUTURES
The U.S. dollar index quickly advanced when the stronger than expected May U.S. employment numbers were reported.
Interest rate differential expectations are neutral for the U.S. dollar as major central banks this year are likely to lower key interest rates.
Yesterday the European Central Bank lowered its key interest rates by 25 basis points as expected. However, many analysts considered the rate reduction to be a “hawkish rate cut” as policymakers expressed worries over inflationary pressures and raised inflation forecasts. This shifted expectations away from a further rate reduction at the next policy meeting.
German industrial production unexpectedly declined in April for a second straight month. Output of production in manufacturing, energy and construction fell 0.1% compared with the previous month. The reading was weaker than the forecast of a 0.2% increase.
The Bank of England’s upcoming policy meeting on June 20 is unlikely to result in an interest rate reduction with September now seen as a more likely time for the BOE to lower its key interest rate.
INTEREST RATE MARKET FUTURES
Futures quickly declined when the U.S. employment report was released.
Financial futures markets are predicting there is a 55% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting. Yesterday the probability was 67%.
The long term fundamentals are becoming more bullish.
Futures are likely to recover from the early morning pressure.
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