Written Commentary
INTEREST RATE MARKET FUTURES
Futures are a little lower at the front end of the curve and are higher elsewhere on the curve, especially at the long end.
The March 30-year U.S. Treasury bond futures advanced to the highest level since December 12, 2024.
The yield on the U.S. 10-year Treasury note fell approximately 7 basis points to 4.33%, which is its lowest level since mid-December.
Federal Reserve speakers are Michael Barr at 10:45 and Thomas Barkin at 12:00 PM.
The U.S. Treasury will auction five-year notes today.
Financial futures markets are predicting the Federal Open Market Committee will keep its fed funds rate unchanged at its March and May policy meetings. However, financial futures markets are predicting the Federal Reserve will reduce its fed funds rate by 25 basis points at its June meeting.
The fundamentals and technical aspects have weakened for futures at the front end of the yield curve and are bullish for futures at the long end of the curve.
STOCK INDEX FUTURES
Stock index futures are higher but remain in a broad trading range that started in the middle of January.
The 9:00 central time February consumer confidence index is expected to be 103.0, and the 9:00 February Richmond Federal Reserve manufacturing index is anticipated to be 7.
Traders are now focused on this week’s second estimate of fourth-quarter gross domestic product growth and the PCE price index report, which is the Federal Reserve’s preferred inflation measure.
In the longer term, the bullish influence of an improving economic outlook in the U.S. is likely to more than offset the bearish impact of a Federal Reserve that is predicted to be slow to move to additional accommodation.
CURRENCY FUTURES
The U.S. dollar index is lower and remains near the two-month lows reached last week, as traders assessed the risks of a potential escalation in the trade war.
Germany’s economy contracted 0.2% in the last quarter of 2024 compared to the third quarter. The export sector registered a significant decrease with goods and services exports declining by 2.2% compared to the previous quarter. The last time a decline of this magnitude was recorded was in the second quarter of 2020.
Joachim Nagel of the European Central Bank, a well-known hawk, said, “ We should take one step at a time and not rush to lower interest rates.”
Negotiated wages in the euro area increased 4.12% year-on-year in the fourth quarter of 2024, slowing from the 31-year high of 5.43% recorded in the prior quarter.
A gauge of U.K. retail sales volume improved slightly to -23 in February 2025, from -24 in January, which surpassed market expectations of -25.
Financial futures markets are predicting the Bank of England will lower its key interest rate at its March policy meeting despite the recently released hotter than expected U.K. consumer prices report.
The Japanese yen is holding near its highest level in 12 weeks, underpinned by expectations that the Bank of Japan will continue raising interest rates this year following upside surprises in fourth-quarter inflation. The Bank of Japan is expected to increase interest rates once more this year, probably in the third quarter, which will bring the benchmark rate to 75 basis points, according to a poll of economists.
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