Written Commentary
STOCK INDEX FUTURES
Last week March S&P 500 and March NASDAQ futures on the daily charts broke out above three-week downtrend lines, and there are follow-through gains on Monday.
The February Empire State manufacturing index was 5.7 when -0.5 was expected.
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 higher today after coming under pressure late last week. Some of the recovery gains today can be linked to recent comments from Federal Reserve officials that signaled the central bank should refrain from rushing to resume interest rate cuts, while it remains focused on curbing inflation.
The number of residential building permits approved in Germany last year declined to its lowest level since 2010. German authorities approved only 215,900 buildings, which was 16.8% fewer than in the previous year.
Investor morale in Germany improved more than expected, according to the ZEW Economic Research Institute. The ZEW Indicator of Economic Sentiment for Germany improved to +26 in February 2025, surpassing market expectations of +20.
The Reserve Bank of Australia reduced its cash rate by 25 basis points to 4.1%, which was in line with expectations. This marked the first interest rate reduction since November 2020, due to a further slowdown in underlying inflation.
In addition, median forecasts project an additional 75 basis points of cuts this year from the RBA.
INTEREST RATE MARKET FUTURES
Futures are lower across the board due to recent hawkish interest rate comments from Federal Reserve officials.
Federal Reserve Governor Christopher Waller suggested a pause in rate cuts based on recent economic data, unless inflation behaves similarly to 2024. Federal Reserve Governor Michelle Bowman also called for patience, urging the Federal Reserve to wait for more evidence that inflation is on track to reach the 2.0% target. In addition, Philadelphia Federal Bank President Patrick Harker advocated for holding interest rates steady in light of a strong economy.
Federal Reserve speakers today are Mary Daly at 9:20 and Michael Barr at 12:00 PM.
Financial futures markets are predicting the Federal Open Market Committee will keep its fed funds rate unchanged at its March, May and June policy meetings. However, financial futures markets are predicting the Federal Reserve will reduce its fed funds rate by 25 basis points at its July 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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