Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower ahead of Tuesday’s Federal Reserve Chair Powell’s speech at the Economic Club of Washington. Traders will be closely watching for clues about how much more the central bank may tighten financial conditions.
In addition, some of the selling today can be linked to increasing geopolitical pressures.
Futures are likely to advance once Powell’s speech on Tuesday is out of the way.
The longer term technical aspects for stock index futures remain supportive.
CURRENCY FUTURES
The U.S. dollar index firmed due to the belief that Powell’s speech may be hawkish on balance. In addition, there may be some flight to quality buying coming into the greenback.
Interest rate differentials are neutral for the U.S. dollar index and breakouts for the greenback are likely to fail in both directions.
Retail sales in the euro area declined 2.7% month-over-month in December of 2022, which is the biggest decline since April of 2021, and following a 1.2% increase in November. Economists anticipated a 2.5% drop.
The S&P Global/CIPS U.K. construction PMI fell 0.4 points from a month earlier to 48.4 in January 2023, indicating the sharpest decline in construction output since May 2020
Australian retail sales declined for the first time in a year last quarter. Data from the Australian Bureau of Statistics showed real retail sales fell 0.2% in the December quarter, which was still better than market forecasts of a 0.6% decline.
INTEREST RATE MARKET FUTURES
Futures are lower due to the belief that Powell’s speech tomorrow may be hawkish on balance.
My analysis suggests the Federal Open Market Committee will increase its fed funds rate by 25 basis points at its March meeting.
Futures are likely at to advance once Powell’s speech on Tuesday is out of the way.
The long term outlook for futures is higher.
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