Written Commentary
STOCK INDEX FUTURES
Stock index futures were lower in the overnight trade after several large corporations issued weak revenue guidance for the second quarter.
Prices continued to decline when the gross domestic product report was released. The gross domestic product for the first quarter increased 1.6% when up 2.3% was expected, and personal consumption expenditures advanced 2.5% when a gain of 2.8% was anticipated.
Jobless claims in the week ended April 20 were 207,000 when 215,000 were forecast.
The 9:00 central time March pending home sales index is estimated to be up 1.0%.
The April Kansas City Federal Reserve manufacturing index will be released at 10:00. Last month the index was -7.
CURRENCY FUTURES
The U.S. dollar index was lower in the overnight trade but quickly reversed and is higher now despite the bearish U.S. gross domestic product report. It is a sign of strength for the greenback to advance on bearish news.
The GfK Consumer Climate Indicator for Germany improved to -24.2 heading into May 2024 from a slightly revised -27.3 in the previous period,. This was above market predictions of -25.9 and was the highest reading in two years.
The monthly retail sales balance from the Confederation of British Industry in the U.K. plunged to -44 in April 2024 from +2 in March. This was much lower than market forecasts of -2.
Canada’s retail sales contracted for the second consecutive month in February, missing expectations. Retail sales decreased 0.1% in February after a 0.3% contraction in January.
The Bank of Japan will hold its monetary policy meeting tomorrow. No change in the target interest rate is expected. The central bank is expected to project inflation will stay near its 2.0% target in coming years due to prospects of steady wage gains.
INTEREST RATE MARKET FUTURES
Futures quickly declined, trading opposite to the bullish weaker than expected U.S. gross domestic product report. The June 30-year Treasury bond futures declined to new lows for the move.
The Treasury will auction seven-year notes today.
There are no speakers from the Federal Reserve 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 64% probability of a rate cut 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 meeting.
The fundamentals remain bearish, and lower prices are likely. However, the downtrend is subject to the possibility of a flight to quality flow of funds if geopolitical concerns intensify.
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