Written Commentary
INTEREST RATE MARKET FUTURES
Futures were lower in the overnight trade but quickly reversed and are mostly higher now in light of the weaker than expected ADP employment change report.
Financial futures markets are predicting the Federal Open Market Committee will keep its fed funds rate unchanged at its March and May policy meetings.
However, it is likely that the Federal Open Market Committee will reduce its fed funds rate by 25 basis points an additional two or three times in 2025.
In light of increasing probabilities of the FOMC more aggressively moving to accommodation this year, additional price gains for futures across the yield curve are likely.
STOCK INDEX FUTURES
Stock index futures were higher in the overnight trade after Commerce Secretary Howard Lutnick indicated that a potential compromise on tariffs between the U.S., Canada, and Mexico could be in the works. However, some pressure developed when the ADP employment report was released.
The February ADP employment report showed an increase of 77,000 jobs, which compares to the expected gain of 162,000. This report is based on payroll data from approximately 400,000 U.S. business clients.
The 8:45 central time February PMI composite is estimated to be 50.4.
There are two 9:00 reports. The January factory orders report is expected to show a 1.4% increase, and the February Institute for Supply Management services index is forecast to be 53.0.
The Federal Reserve’s beige book on the economy will be released at 1:00. This book is produced approximately two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Federal Reserve district bank compiles evidence on economic conditions from each of the 12 Federal Reserve districts.
While current geopolitical and economic concerns are exerting downward pressure on stock index futures, in the longer-term futures will be supported by a more accommodative Federal Open Market Committee.
CURRENCY FUTURES
The U.S. dollar index declined for third consecutive session, reaching its lowest level since November 11 in light of mounting concerns over the escalating trade war.
Industrial producer prices in the euro area increased by 0.8% month-over-month in January 2025, accelerating from December’s 0.5% advance and surpassing market expectations of 0.5%.
It is widely expected that the European Central Bank will lower its key interest rate by 25 basis points at its policy meeting tomorrow.
The Japanese yen advanced and remains near a five-month high, as demand for safe-haven assets increased in light of growing concerns over tariff risks.
The Bank of Japan is likely to increase interest rates further this year.
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