Written Commentary
STOCK INDEX FUTURES
Futures are under pressure in a risk-off mode, as investors rushed to adjust to geopolitical developments. Prices are lower, but are well off of the overnight lows.
Wholesale inventories in January increased 0.8% when a gain of 1.9% was expected.
The 8:45 central time February Chicago PMI is anticipated to be 63.0 and the 9:30 February Dallas Federal Reserve manufacturing index is estimated to be 1.0.
The dominant influences remain geopolitical tensions followed distantly by the hawkish Federal Reserve.
CURRENCY FUTURES
Flight to quality longs are being established in the U.S. dollar, as investors resume a flight to safety.
Traders are reducing expectations for a 50 basis point interest rate increase from the Bank of England at its March 17 policy meeting after more cautious comments from policy makers. Money markets are currently pricing in a 25 basis point rate increase from the BoE.
The Canadian dollar is lower as investors await the Bank of Canada’s monetary policy meeting on Wednesday. The latest data showed Canada’s annual inflation rate advanced to a 30-year high of 5.1% in January, adding pressure on the Bank of Canada to hike interest rates.
When the geopolitical issues are reduced it will be the interest rate differential expectations influence will once again dominate to take the British pound higher and the Japanese yen lower.
INTEREST RATE MARKET FUTURES
Flight to quality longs are being established across the board.
Raphael Bostic of the Federal Reserve will speak at 9:30.
The yield on the benchmark 10-year U.S. Treasury note fell to 1.906% from 1.984% on Friday, as investors reached for the safety of government securities.
In light of the ongoing geopolitical tensions, there is growing pressure on hawkish central banks to slow their withdrawal of accommodation.
Financial futures markets are predicting there is an 87.6% probability that the Federal Reserve will hike its fed funds rate by 25 basis points at its March 16 policy meeting, as the probability for a 50 basis point hike is reduced.
Some analysts believe that if the rate of growth in the U.S. economy slows, and also globally, it may be difficult for the Federal Reserve and other major central banks to maintain ramped-up hawkish policies.
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