Written Commentary
CURRENCY FUTURES
The euro zone consumer price index in April increased to 7.0% on an annualized basis, which was in line with economists’ forecasts. However, core inflation, which strips out volatile items like food and fuel, slowed marginally to 5.6%.
The European Central Bank is expected to announce its seventh consecutive interest rate hike on Thursday. Markets are fully pricing in a 25 basis point interest rate increase.
U.K. factory output and new orders contracted at the beginning of the second quarter of 2023. However, manufacturers were more optimistic and input costs increased at the weakest rate since May 2020.
A Bank of England interest rate increase is likely when the central bank meets on May 11.
The Reserve Bank of Australia unexpectedly raised its cash rate by 25 basis points to 3.85% after maintaining it at 3.6% in April. This marks the 11th time the bank has increased rates in the past year.
Longer term, interest rate differentials suggest lower prices for the U.S. dollar and higher prices for the euro currency.
STOCK INDEX FUTURES
The Logistics Manager’s Index in the U.S. declined for a third consecutive month to hit another record low of 50.9 in April of 2023, which compared to 51.1 in March.
The 9:00 central time March factory orders report is expected to show a 1.3% increase.
The 9:00 March Job Openings and Labor Turnover Survey (JOLTS) is anticipated to show 9.65 million.
Today is the first day of the two-day Federal Open Market Committee meeting.
Futures have performed very well this year despite the higher interest rates from the Federal Reserve.
INTEREST RATE MARKET FUTURES
The Federal Open Market Committee is on track to hike interest rates again on Wednesday, while deliberating whether that will be enough to then pause the fastest rate-increasing cycle in 40 years.
Another 25 basis point increase would lift the benchmark fed funds rate to a 16-year high of 5.00%-5.25%. The Fed began increasing rates from near zero in March 2022.
Underlying support for futures remains due to the belief that central banks will not be able to keep raising interest rates much longer.
The technicals and fundamentals remain supportive.
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