Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher despite the hotter than expected January producer price index report.
The producer price index in January on a month-to-month basis increased 0.4% when up 0.3% was expected, and the producer price index on an annualized basis advanced 3.5% when a gain of 3.2% was anticipated.
The January producer price index excluding food and energy on a month-to-month basis increased to 0.3% when up 0.3% was predicted, and the producer price index excluding food and energy on an annualized basis was up 3.6% when a gain of 3.3% was estimated.
Jobless claims in the week ended February 8 were 213,000 when 217,000 were expected.
Stock index futures are performing better than the news would suggest, which is a sign prices will continue to advance today.
CURRENCY FUTURES
In the overnight trade the U.S. dollar index erased gains as traders assessed President Donald Trump’s trade policies. President Trump stated that new reciprocal tariffs would be announced later in the day, following his recent imposition of a 25% levy on aluminum and steel imports and a 10% tariff on Chinese products.
The U.S. dollar index came under pressure this morning in spite of the larger than predicted increase in January producer prices.
In the longer term view, interest rate differentials are likely to underpin the U.S. dollar.
Euro zone industrial production declined by 1.1% month-over-month in December 2024, reversing upwardly revised 0.4% growth in November and compared with market expectations of a 0.6% decline.
European Central Bank policymaker Boris Vujčić said expectations for three more interest rate cuts this year are not unreasonable.
The U.K. economy expanded 0.1% on quarter in the fourth quarter of 2024 beating forecasts of a 0.1% contraction.
Bank of England’s chief economist Huw Pill said ,“I do expect we can cut rates further.”
INTEREST RATE MARKET FUTURES
Futures are steady at the front of the yield curve and are higher elsewhere on the curve despite the bearish U.S. January producer price index report.
The U.S. Treasury will auction 30-year bonds today.
Financial futures markets are predicting the Federal Open Market Committee will keep its fed funds rate unchanged at its March, May, June and July policy meetings. However, financial futures markets are predicting the Federal Reserve will reduce its fed funds rate by 25 basis points at its September meeting.
An additional interest rate reduction from the FOMC is unlikely until next year.
The fundamentals and technical aspects have weakened for futures at the front end of the yield curve.
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