Written Commentary
INTEREST RATE MARKET FUTURES
Futures are steady at the front of the yield curve and are higher at the long end of the yield curve.
Yesterday Federal Reserve Vice Chair Philip Jefferson said there is no hurry to further cut interest rates, and a strong economy makes caution appropriate.
There was only limited pressure on futures when the bearish, stronger than expected ADP employment report was released.
Federal Reserve speakers today are Thomas Barkin at 8:00, Austan Goolsbee at 1:30, Michelle Bowman at 2:00 and Philip Jefferson at 6:30 PM
Financial futures market are predicting the FOMC will reduce its fed fund rate by 25 basis points at its June 18 policy meeting.
STOCK INDEX FUTURES
Stock index futures are lower due to on balance weaker than expected corporate earnings reports.
The January ADP employment report showed an increase of 183,000 when a gain of 153,000 was expected.
The 8:45 central time January PMI services index is anticipated to be 52.8, and the 9:00 January Institute for Supply Management services index is estimated to be 54.0.
The U.S. economy is likely to hold up better than economies elsewhere in the world.
CURRENCY FUTURES
The U.S. dollar index is lower as some flight to quality longs are liquidated. However, there was some recovery when the stronger than expected ADP employment report was released.
In the longer-term view, interest rate differentials are likely to underpin the greenback.
Producer prices in the euro zone increased 0.4% month-over-month in December 2024, following a 1.7% decline in November, which was in line with market expectations.
The European Central Bank recently reduced interest rates and suggested additional interest rate cuts could be possible in March. There are concerns that U.S. tariffs might cause deflationary pressures, potentially prompting the ECB to ease monetary policy even more aggressively.
The Bank of England is widely expected to lower its bank rate by 25 basis points to 4.5% at its policy meeting tomorrow.
The Japanese yen advanced to a seven-week high, as strong wage and services data bolstered expectations of a more hawkish monetary policy from the Bank of Japan.
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