Written Commentary
STOCK INDEX FUTURES
S&P 500 and Dow futures advanced to record highs. Recent gains are linked to strong earnings reports.
Jobless claims in the week ended August 7th were 375,000 when 378,000 were expected.
The July producer price index increased 1.0% when a gain of 0.6% was anticipated.
The fundamentals and technical aspects remain positive for U.S. stock index futures.
CURRENCY FUTURES
The U.S. dollar index is higher after the July producer price index came in stronger than predicted. Longer term, the greenback is likely to be supported by safe-haven flows of funds.
Euro zone industrial production fell by 0.3% from a month earlier in June, following a revised 1.1% decline in May and compared with market expectations of a 0.2% drop.
Traders expect the European Central Bank will remain dovish for some time, after policymakers promised last month to keep interest rates at record low levels for even longer in an effort to bring inflation back to its 2.0% target.
U.K. gross domestic product grew by 4.8% on the quarter in April to June 2021, recovering from a 1.6% contraction in the previous three-month period. This was in-line with analyst’s estimates.
INTEREST RATE MARKET FUTURES
Futures are holding up well despite the larger than expected increase in the producer price index.
Recent comments from Federal Reserve officials suggest the central bank could soon taper its asset purchases.
Kansas City Federal Reserve President Esther George said on Wednesday the standard for reducing the bond-buying program may have already been met by the current increase in inflation and recent labor market improvements.
Dallas Federal Reserve President Robert Kaplan on Wednesday said the central bank should begin to taper its monthly purchases of Treasury bonds and mortgage-backed securities in October.
Yesterday’s 10-year Treasury note auction was relatively well received. Today the Treasury will auction 30-year bonds.
The interest rate futures markets have been indicating since May clues about the state of the global economy and inflation with the U.S. Treasury yield curve flattening.
A flattening yield curve suggests a slower rate of global economic growth in the future.
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