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Indexes Higher Despite Higher Jobless Claims

STOCK INDEX FUTURES

Stock index futures are higher despite ongoing concerns about tightening monetary policy from the Federal Reserve.

Jobless claims in the week ended January 15 were 286,000 when 231,000 were expected.

The January Philadelphia Federal Reserve manufacturing index was 23.2, which compares to the anticipated 19.1.

The 9:00 central time December existing home sales report is estimated to be 6.4 million.

While the hawkish Federal Reserve dominates the headlines the longer-term fundamentals remain supportive.

CURRENCY FUTURES

The euro currency is a little higher after a report showed producer inflation in Germany accelerated for a twelfth consecutive month to a new record high of 24.2% in December of 2021, which is above 19.2% in November and forecasts of 19.4%.

Benchmark German bund yields fell  into negative territory again, a day after they briefly turned positive for the first time since 2019. The yield on the 10-year German government bund declined to minus 0.023% today from minus 0.014% Wednesday.

The British pound is higher. Yesterday it was reported that U.K. inflation surprised with a jump to the highest level in 30 years.

In the longer term, a hawkish Bank of England will likely support the British pound. Financial futures markets have priced in up to four Bank of England interest rate hikes this year.

An accommodative Bank of Japan will likely result in long-term pressure on the yen.

The Australian dollar is higher, as stronger-than-expected employment numbers reinforced market expectations for an early increase in interest rates. There was a 66,800 gain in jobs in December, pushing the unemployment rate down to its lowest level since mid-2008 at 4.2%. Markets are pricing in a 70% probability of a hike in the cash rate by May and expect the Australian central bank to end its quantitative easing program at its February 1 policy meeting.

INTEREST RATE MARKET FUTURES   

Futures are mixed on offsetting U.S. economic reports.

Federal Reserve officials remain steadfast in their intentions to hike the fed funds rate three or four times this year.

The next Federal Open Market Committee meeting is scheduled for January 26. Most analysts are predicting the FOMC will keep its fed funds rate unchanged at 0% to .25% at that meeting.

Financial futures markets are predicting the FOMC will hike its fed funds rate at the March 26 policy meeting by 25 basis points.

Some analysts believe that if the rate of growth in the U.S. economy slows, it may be difficult for the Federal Reserve to maintain its recently ramped-up hawkish policy stance.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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