Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower as earnings season is set to kick off later this week. Investors remain worried about the impact of inflation on corporate profits.
The June National Federation of Independent Business small business optimism index was 89.5 when 92.9 was expected.
The next key data release is on Wednesday with the U.S. consumer price index for June.
CURRENCY FUTURES
The U.S. dollar index advanced to a new 20-year high. The Federal Reserve is likely to hike interest rates more than other major central banks, which suggests higher prices for the U.S. dollar.
The euro currency declined to the lowest level in 20 years, falling towards parity against the U.S. dollar. Pressure on the euro is linked to economic and political concerns, which could make it more difficult for the European Central Bank to tighten monetary policy.
Interest rate differentials remain supportive to the greenback. The U.S. Federal Reserve is seen delivering a 75 basis point increase in its fed funds rate later this month following a cumulative 150 basis point increase in rates since March. The European Central Bank is only expected to raise key rates by 25 basis points later this month, which would be the first increase in over 11 years.
The ZEW Indicator of Economic Sentiment for Germany tumbled to -53.8 in July from -28 in June, which is the lowest level since December 2011 and well below market expectations of -38.3. The current conditions subindex also deteriorated sharply to -45.8 from -27.6, missing analysts’ forecasts of -34.5.
Lower prices are likely for the euro currency.
The British pound remains close to its lowest level since March 2020 as political turmoil in the U.K. clouds the country’s economic outlook.
Australian consumer sentiment fell for a seventh consecutive month in July. The Westpac-Melbourne Institute index of consumer sentiment fell 3.0% to 83.8 in July from 86.4 in June.
INTEREST RATE MARKET FUTURES
Portions of the U.S. yield curve remained inverted with yields on shorter-dated Treasury issues above those of longer-dated debt.
The Treasury will auction 10-year notes today.
According to financial futures markets, there is a 91.8% probability that the Federal Open Market Committee will hike its fed funds rate by 75 basis points and an 8.2% probability that the rate will increase by 100 basis points at the July 27 meeting.
Thomas Barkin of the Federal Reserve will speak at 11:30 central time.
The fundamental and technical aspects of the interest rate market futures are improving.
The main trend for futures is higher.
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