Written Commentary
STOCK INDEX FUTURES
Stock index futures are mixed.
The National Federation of Independent Business small business optimism index in January fell to an 11-month low of 97.1 when 97.5 was expected.
The small business optimism index is compiled from a survey that is conducted every month by the National Federation of Independent Business of its members.
The dominant influence now is the geopolitical risk, followed closely by the hawkish Federal Reserve.
CURRENCY FUTURES
The euro currency declined after European Central Bank President Christine Lagarde said there are no signals that euro zone inflation will be significantly and persistently above the ECB’s target over the medium term and that any adjustment to policies will be gradual.
The euro currency advanced 2.7% last week in its best performance since early 2020, as traders ramped up their expectations for rate hikes following the hawkish latest ECB press conference. Financial futures markets are still pricing in approximately 50 basis points of rate hikes this year although economists are more cautious, with most predicting the first hike in rates at the end of this year or early in 2023.
The Canadian dollar is lower despite news that imports to Canada increased 3.7% on a monthly basis in December of 2021, which is the third consecutive month of increases.
Financial futures markets have priced in up to four Bank of England interest rate increases this year, which in the longer term, will likely support the British pound.
Interest rate differential expectations suggest the long term trend for the British pound is higher and lower for the Japanese yen.
INTEREST RATE MARKET FUTURES
The Treasury will auction three-year notes today.
Financial futures markets are predicting five fed funds rate hikes in 2022.
Some analysts believe that if the rate of growth in the U.S. economy slows, and also the global economy, it may be difficult for the Federal Reserve and other central banks to maintain their ramped up hawkish policy stance.
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