Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher after the smaller than expected increase in the December producer price index report was released. The producer price index, which measures wholesale prices, increased 0.2%, which compares to the anticipated 0.4% increase.
Jobless claims in the week ended January 8 were 230,000 when 205,000 were estimated.
Fourth-quarter earnings season kicks off this week.
The longer-term fundamentals remain supportive despite the more hawkish Federal Reserve.
CURRENCY FUTURES
The U.S. dollar index declined for a third day and yesterday and fell below a two-month congestion pattern. Some analysts are thinking weakness in the U.S. dollar suggests the Federal Open Market Committee may later this year back off from its recently increased hawkishness.
The British pound advanced to a new nine-week high against the U.S dollar.
A hawkish Bank of England will likely continue to support the British pound. The Bank of England surprised traders in December by hiking interest rates from record low levels. The central bank will probably increase interest rates again as early as next month. Financial futures markets have priced in up to four Bank of England interest rate hikes in 2022.
The Japanese yen rebounded further from a five-year low hit on January 4. The Bank of Japan is widely expected to maintain its ultra-loose policy as Japanese inflation remained well below the 2.0% central bank target. The next Bank of Japan policy meeting is scheduled for January 18.
An accommodative Bank of Japan will likely result in long-term pressure on the yen.
INTEREST RATE MARKET FUTURES
Yesterday, Federal Reserve Bank of St. Louis President James Bullard said four interest rate increases in 2022 now appear likely. He said the U.S. central bank will need to move more aggressively on rate rises this year as it seeks to stem an inflation surge.
The next Federal Open Market Committee meeting is scheduled for January 26.
Federal Reserve Governor Lael Brainard is scheduled to speak in front of the Senate Banking Committee at 9:00 in her nomination hearing to become vice chair. Investors are waiting to hear her views on inflation and the economy.
Other Federal Reserve speakers today are Thomas Barkin at 11:00 and Charles Evans at 12:00.
Some analysts believe that if the rate of growth in the U.S. economy slows, it may be difficult for the Federal Reserve to maintain its recently ramped-up hawkish policy stance.
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