Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher on the belief that this morning’s on-balance softer than expected employment numbers could cause the Federal Open Market Committee to pivot to accommodation sooner rather than later.
Nonfarm payrolls in June increased 206,000 when a gain of 189,000 was expected. However, the previous month was revised to show a substantially smaller increase.
Private payrolls increased 136,000, which compares to the anticipated increase of 160,000.
Manufacturing payrolls declined 8,000 when an increase of 6,000 was estimated.
The unemployment rate was 4.1% when 4.0% was forecast.
Average hourly earnings increased 0.3%, which was expected, and average weekly hours were 34.3 as anticipated.
The longer term fundamentals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
Futures quickly advanced due to the weaker on-balance U.S. employment numbers.
Financial futures markets are predicting there is a 76% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting. On Wednesday the probability was 68%.
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.
CURRENCY FUTURES
The U.S. dollar index was lower in the overnight trade and declined further when the 7:30 central time U.S. employment numbers were reported.
German industrial production declined by 2.5% month-over-month in May, missing market expectations of 0.2% growth.
Retail sales in the euro area increased 0.1% month-over-month in May, which compares to forecasts of a 0.2% gain.
The British pound advanced to an over three-week high in light of results of the parliamentary elections.
Financial futures markets are now predicting there is approximately a 60% probability that the Bank of England will lower its key interest rate in August. Some analysts are anticipating a total of three interest rate cuts from the BOE in 2024.
The Japanese yen rebounded slightly from 38-year lows that were registered earlier this week. Interest rate differentials between the U.S. and Japan remain wide.
Canada’s services economy moved into contraction in June. The S&P Global Canada services PMI headline business activity index fell to 47.1 from 51.1 in May.
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