Written Commentary
STOCK INDEX FUTURES
Stock index futures continued to trade lower on Monday following Friday’s declines in light of the stronger than expected U.S. December employment report. Pressure on futures is due to the belief that a strong employment situation will influence the Federal Open Market Committee to be slower to add accommodation. Traders will be closely watching tomorrow’s producer price index report and Wednesday’s consumer price index release.
Traders are gearing up for earnings season with major banks set to report later in the week. Also, traders are closely watching the Federal Reserve’s 2025 policy outlook, focusing on the likelihood of fewer interest rate cuts.
CURRENCY FUTURES
The U.S. dollar index Is higher, extending Friday’s advance that was linked to the stronger than anticipated U.S. December employment numbers. The greenback traded at the highest level since level since November 2022 as traders scaled back expectations for Federal Reserve interest rate cuts this year. Traders now anticipate only 27 basis points of interest rate cuts in 2025. The U.S. dollar’s biggest gains were seen against the British pound and the euro currency.
The long term fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.
European Central Bank policymaker Olli Rehn said it makes sense to continue with interest rate cuts.
The long term fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.
INTEREST RATE MARKET FUTURES
Futures are mixed today after declines on Friday that were linked to the stronger than expected U.S. employment data.
There is a 97% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 3% chance of a 25 basis point reduction.
The timeline for a 25 basis point interest rate cut from the FOMC has been pushed out to the June 18, 2025 policy meeting.
The U.S. economy is likely to perform well, which may cause the FOMC to be slower to add accommodation in 2025 than the consensus view.
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