Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures are higher due to vaccine optimism and signs of progress toward a fresh fiscal stimulus package.
The Federal Open Market Committee’s two-day policy meeting concludes today.
November retail sales fell 1.1% when a decline of 0.3% was expected.
The 8:45 central time December PMI composite index is anticipated to be 57.4.
There are three 10:00 reports. The December housing market index is estimated to be 89 and October business inventories are predicted to be up 0.6%. The December Atlanta Federal Reserve business inflation expectations report showed 1.9% last month.
Stock index futures are performing well for the news suggesting higher prices are likely longer term.
CURRENCY FUTURES
The U.S. dollar index is lower, as safe-haven longs continue to be liquidated. The greenback hit its lowest level since May 2018.
Longer term, the U.S. dollar is likely to trend lower due to expectations for an extended period of low interest rates and concerns over rising U.S. levels of debt.
The euro currency advanced to its highest level since May 2018, boosted by better-than-expected PMI data for the euro zone. Interest rate differential expectations suggest higher prices for the euro.
The British pound advanced amid optimism surrounding a post-Brexit trade deal.
INTEREST RATE MARKET FUTURES
Flight to quality longs at the long end of the yield curve are being liquidated.
The Federal Open Market Committee will release a statement at 1:00 p.m. and Federal Reserve Chairman Powell will hold a press conference at 1:30 p.m.
We could see a change in guidance relating to the asset purchases, which currently stand at $80 billion of Treasuries and $40 billion of mortgage backed securities each month.
The FOMC could adjust its purchases to focus on longer-dated Treasuries, which would place greater pressure on long-term rates.
In the months ahead the yield curve is likely to steepen, which would put pressure on futures at the long end of the curve, especially the 30-year Treasury bond futures, while futures at the short end of the curve are likely to hold steady.
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