Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures are higher as traders focus on a report that a new U.S. $2.0 trillion stimulus program will be unveiled later today, which is far larger than even the most “optimistic” expectations.
Jobless claims in the week ended January 9 were 965,000 when 790,000 was expected.
Federal Reserve Chairman Jerome Powell is scheduled to speak at 11:30 central time at a virtual event hosted by Princeton University. His comments could offer more clues on the Fed’s guidance.
Powell’s speech will be closely watched for the Fed’s outlook on the economy and when the Fed might begin to withdraw its stimulus measures.
CURRENCY FUTURES
The U.S. dollar index is higher as the prospect of more stimulus put upward pressure on U.S. government bonds yields.
However, longer term, the U.S. dollar is likely to trend lower on the belief that an increase in fiscal spending would raise the budget and current account deficits. Also undermining the greenback are expectations for an extended period of low interest rates.
The euro currency is lower despite news that Germany’s gross domestic product fell slightly less than anticipated, declining by an adjusted 5.0% in 2020. The median estimate called for a 5.1% contraction.
INTEREST RATE MARKET FUTURES
In addition to Fed Chair Powell, other Federal Reserve speakers today are Raphael Bostic at 10:00 and Robert Kaplan at 12:00.
Financial futures markets are predicting there is a 95.2% probability that the Federal Open Market Committee will keep its key fed funds rate unchanged at 0 to 25 basis points at its January 27, 2021 policy meeting.
In the months ahead the yield curve is likely to steepen, which would put pressure on futures at the long end of the curve, especially the 30-year Treasury bond futures, while futures at the short end of the curve are likely to hold steady.
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