Written Commentary
CURRENCY FUTURES
The U.S. dollar index advanced to a new high for the move, and to the highest level since July 10, in the overnight trade. However, prices are slightly lower this morning.
A recovery to higher on the day for the greenback is likely.
Much of the strength in the U.S. dollar recently is linked to flight to quality buying in light of geopolitical tensions in the Middle East and favorable interest rate differentials.
The fundamentals and technicals remain supportive to the U.S. dollar.
The outlook for Germany’s export industry deteriorated further in October, with the automotive and metal sectors anticipating the heaviest losses in international trade, according to the results of a survey published today. Ifo’s indicator for export expectations fell to minus 6.7 points in October from minus 6.5 points in September.
Traders have fully priced in a 25 basis point interest rate cut from the European Central Bank in December.
The Confederation of British Industry’s retail trade survey showed sales volumes fell 6% in October, after growth of 4% in September.
The Japanese yen depreciated past 153.5 per U.S. dollar on Monday, hitting an almost three-month low after the ruling coalition lost its parliamentary majority at the weekend election, which makes the outlook for potential Bank of Japan interest rate increases more uncertain.
STOCK INDEX FUTURES
Stock index futures are higher.
The 9:30 central time October Dallas Federal Reserve manufacturing survey is expected to be negative 9.0.
December S&P 500 futures advanced above a downtrend line on Friday.
Futures are performing better than the news would suggest, indicating some bullish new is coming.
INTEREST RATE MARKET FUTURES
The yield on the 10-year U.S. Treasury note increased to around 4.27%, hitting its highest level in three months in light of growing expectations that the Federal Reserve will adopt a more cautious approach to further interest rate reductions, likely opting for more moderate 25 basis point cuts at upcoming meetings.
Futures are steady to higher at the front of the yield curve and are lower at the long end of the yield curve.
The December 30-year U.S. Treasury bond futures declined to the lowest level since July 3.
The U.S. Treasury will auction two and five-year notes.
Futures at the front end of the yield curve are likely to continue to gain on futures at the long end of the yield curve.
Currently there is a 99% probability that the FOMC will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 1% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.
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