Written Commentary
STOCK INDEX FUTURES
Stock index futures came under pressure due to the larger than expected increase in the January consumer price index. The consumer price index report puts pressure on the Federal Open Market Committee to move more slowly toward additional accommodation.
The consumer price index in January on a month-to-month increased 0.5% when up 0.3% was expected, and on a year-to-year basis the consumer price index advanced 3.0% when up 2.9% was predicted.
The January consumer price index excluding food and energy on a month-to-month basis was up 0.4% when an increase of 0.3% was estimated, and on an annualized basis the consumer price index excluding food and energy was up 3.3%, which compares to the prediction of up 3.1%.
In yesterday’s testimony before the Senate Banking Committee, Federal Reserve Chair Jerome Powell reiterated that the central bank is in no rush to cut interest rates. He emphasized the strength of the economy and persistent inflation and cautioned that acting too quickly to ease policy could derail inflation progress, while moving too slowly might stifle economic growth.
Powell will testify before the House Financial Services Committee today at 9:00 central time.
CURRENCY FUTURES
The U.S. dollar index quickly advanced when the larger than expected increase in the January consumer price index was reported. Stronger than anticipated inflation numbers exert pressure on the Federal Reserve to keep its key interest rate unchanged for longer, which is bullish for the greenback.
In the longer term view, interest rate differentials are likely to underpin the U.S. dollar.
The Canadian dollar and the Australian dollar, “the commodity currencies,” are lower due to declining crude oil prices.
Japan’s machine tool orders in January increased 4.7% year-on-year, slowing from an 11.2% gain in December 2024.
INTEREST RATE MARKET FUTURES
Futures are lower across the board in light of the bearish January consumer price index report.
Futures at the front of the yield curve have declined to new lows for the move and are now trading at the lowest level since mid-July of 2024.
The U.S. Treasury will auction 10-year notes today.
In addition to Federal Reserve Chair Powell, other Federal Reserve speakers today are Raphael Bostic at 11:00 and Christopher Waller at 4:05 PM.
Financial futures markets are predicting the Federal Open Market Committee will keep its fed funds rate unchanged at the March 19, May 7 and July 30 policy meetings. However, financial futures markets are predicting the Federal Reserve will reduce its fed funds rate by 25 basis points at its September 17 meeting. An additional interest rate reduction from the FOMC is unlikely until next year.
The fundamentals and technical aspects have weakened for futures at the front end of the yield curve.
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