Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures are higher extending the rally for the fourth straight session.
The U.S. third-quarter corporate earnings reporting season will kick off this week. Many analysts believe earnings will continue to rebound, but the pace of improvement will slow.
Futures are performing well on the news, and the technical situation has improved.
CURRENCY FUTURES
After declines last week, the U.S. dollar index is a little higher. However, I would not be surprised to see the greenback trade lower on the day.
The Bank of England asked British lenders to assess their readiness for subzero interest rates, which is the latest indication that officials are studying the merits of such a policy, if necessary, as a way to support the U.K. economy.
This is after BoE officials have long insisted that they did not think negative rates were appropriate for the U.K.
Informal negotiations on Brexit continue in Brussels. Both the U.K. and the E.U. pledged to reach an agreement on their future relationship by October 15.
Bank of Japan Governor Haruhiko Kuroda reiterated today that the central bank will not hesitate to take additional easing measures, if necessary,
Japan’s August core machinery orders were up 0.2% when a decline of 1.0% was anticipated, and bank lending in September in Japan increased 6.2% on the year.
INTEREST RATE MARKET FUTURES
In the long term, interest rate market futures at the short end of the curve are likely to be supported by ideas that major central banks, including the Federal Reserve, will keep short term interest rates low for an extended period. Many analysts believe it will be several years, possibly not until 2023, before the Federal Reserve will be in a position to hike its fed funds rate, which currently stands at zero to 25 basis points.
However, futures at the long end of the curve, especially the 30-year Treasury bond futures may be undermined by the inflationary aspects of the Federal Reserve’s “average inflation targeting” policy, along with the potential for a global economic recovery.
Financial futures markets are predicting there is almost a 100% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at the November 4-5 policy meeting.
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