Written Commentary
STOCK INDEX FUTURES
Yesterday’s big rally took place despite the surprise 1.4% decline in the first quarter gross domestic product, when up 1.1% was expected. This was reminiscent of the “bad news is the good news” logic when traders reason that weak economic reports could influence the Federal Reserve to be less hawkish.
Stock index futures are lower today in response to disappointing quarterly corporate earnings reports.
Personal income in March increased 0.5% when up 0.4% was anticipated.
The 8:45 central time April Chicago PMI is anticipated to be 61.3 and the 9:00 April consumer sentiment index is predicted to be 65.6.
CURRENCY FUTURES
The U.S. dollar index pulled back from 20-year highs.
Interest rate differential expectations suggest higher prices are likely for the greenback.
Germany’s gross domestic product increased by an adjusted 0.2% from the previous quarter. Economists had forecast a 0.1% expansion.
The annual inflation rate in the euro area advanced to a record high of 7.5% in April from 7.4% in March, and was in line with market expectations.
Lower prices are likely for the euro currency.
The Japanese yen recovered somewhat today after yesterday it fell to its lowest level in 20 years. Recent pressure on the yen is linked to the Bank of Japan’s firm commitment to maintain ultra-easy monetary policies, which contrast sharply with other major central banks that are hiking interest rates.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
Eighteen of 21 economists see the Reserve Bank of Australia hiking its key interest rate at its May 3 policy meeting, which would be the first rate hike since 2010.
INTEREST RATE MARKET FUTURES
Currently there is a 98.7% probability of a 50 basis point increase and a 1.3% probability of a 25 basis point hike in the fed funds rate at the Federal Open Market Committee’s ’s May 4 policy meeting.
Lower prices are likely across the board for the interest rate market futures as most major central banks are anticipated to tighten credit policies this year.
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