Written Commentary
INTEREST RATE MARKET FUTURES
Futures firmed yesterday in light of U.S. Federal Reserve Chair Powell’s dovish on balance comments.
Price gains were extended today when the weak ADP employment and higher than expected jobless claims reports were released.
Financial futures markets are predicting there is a 68% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.
Financial futures markets are suggesting there will be two 25 basis point rate cuts in 2024, despite many Federal Reserve officials predicting only one fed funds rate reduction this year.
STOCK INDEX FUTURES
Stock index futures are mixed.
Yesterday Federal Reserve Chair Jerome Powell, speaking at a European Central Bank forum, said the Federal Open Market Committee “has made quite a bit of progress” in getting back to price stability and the FOMC’s inflation objective of 2.0%. In addition, Powell said, “We want that progress to continue” and that the recent data “do suggest that we are getting back on a disinflationary path.”
The June ADP employment report disappointed, coming in up 150,000 when an increase of 161,000 was expected.
Jobless claims in the week ended June 29 were 238,000 when 233,000 were anticipated.
The 8:45 central time June PMI services index is forecast to be 55.1.
The 9:00 May factory orders report is anticipated to show a 0.2% increase, and the 9:00 June Institute for Supply Management services index is predicted to be 53.0.
The minutes from the June 12 Federal Open Market Committee meeting will be released at 1:00.
The longer term fundamentals remain supportive to stock index futures.
CURRENCY FUTURES
The U.S. dollar index was a little lower in the overnight trade and came under additional pressure when the ADP employment and jobless claims reports were released.
Producer prices in the euro area declined 0.2% month-over-month in May 2024, following a 1.0% drop in April and compared to predictions of a 0.1% decrease. This marked the seventh consecutive month of producer price deflation.
The Japanese yen depreciated toward 162 per U.S. dollar, falling to a new 38-year low, as interest rate differentials between Japan and the U.S. remain wide. There is growing speculation that the Bank of Japan could intervene in foreign exchange markets to support the yen.
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