Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher as traders focus on corporate results.
Federal Reserve Chair Jerome Powell said on Tuesday that recent data on inflation had not given U.S. policymakers the confidence needed for them to pivot to interest rate cuts soon.
The April Atlanta Federal Reserve business inflation expectations report will be released at 9:00 central time. Last month the figure was 2.4% year-over-year.
At 1:00 the Federal Reserve will release its Beige Book on the economy. This book is produced approximately two weeks before the monetary policy meetings of the Federal Open Market Committee.
In the short term, the bearish influence of higher interest rates for longer has taken a toll.
However, the longer term fundamentals are mostly bullish, while the technicals remain supportive to stock index futures.
CURRENCY FUTURES
The U.S. dollar index is steady.
The greenback has been supported by interest rate differentials that have turned more favorable. The Federal Reserve is likely to remain restrictive for longer, while other major central banks will probably become accommodative sooner.
Euro zone inflation slowed across the board last month, reinforcing expectations for a European Central Bank interest rate cut in June.
Inflation in the 20 nations sharing the euro currency slowed to 2.4% last month from 2.6% in February, which was in line with a preliminary estimate released earlier this month.
The inflation rate in the U.K. fell to 3.2% year-on-year in March 2024 from 3.4% in the previous month but remained slightly above the market expectation of 3.1%. This reading suggests an interest rate cut by the Bank of England could be further off than previously thought.
INTEREST RATE MARKET FUTURES
Yesterday Federal Reserve Chair Powell indicated interest rate cuts will take longer as recent data shows a lack of progress on inflation. Powell said officials would leave rates at their current level “as long as needed” if inflation proved more stubborn.
Federal Reserve speakers today are Loretta Mester at 4:30 and Michelle Bowman at 6:15 PM.
The Treasury will auction 20-year bonds today.
Financial futures markets are predicting no change in the fed funds rate at the Federal Open Market Committee’s May, June and July meetings. However, there is a 67% probability of a rate reduction at the September 18 meeting.
I would not be surprised to see the probability of a fed funds rate cut at the September meeting diminishing as we get closer to that date.
The fundamentals and technicals for futures remain bearish on balance, and lower prices for futures are likely.
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