Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower in light of fears of an escalating trade war and prospects of global economic weakness.
The Logistics Managers’ Index in the U.S. increased for a second consecutive month to 62.8 in February 2025 from 62 in January. This marks the strongest growth in the logistics sector since June 2022.
While current geopolitical and economic concerns are exerting downward pressure on stock index futures, in the longer term futures will be supported by a more accommodative Federal Open Market Committee.
CURRENCY FUTURES
The U.S. dollar index fell for a second consecutive session, reaching its lowest level in approximately three months, in light of mounting concerns over the escalating trade war and its potential impact on the U.S. economy.
The unemployment rate in the euro area was at 6.2% for a third month in January 2025, remaining at the record low level following the downward revision to December’s report, and below market expectations of 6.3%. This report indicates the euro zone’s labor market remains at a tight level in spite of slowdowns and contractions among the bloc’s largest economies.
It is widely expected that the European Central Bank will lower its key interest rate by 25 basis points at its March 6 policy meeting.
The Japanese yen advanced and is approaching a five-month high, as demand for safe-haven assets increased in light of growing concerns over tariff risks.
The Bank of Japan is likely to increase interest rates further this year.
INTEREST RATE MARKET FUTURES
Futures are higher across the board today after substantial gains were registered over the past two and a half weeks. Much of the recent strength can be linked to fears of escalating trade tensions along with prospects of a weakening global economy.
The yield on the 10-year U.S. Treasury note fell to around 4.14% on Tuesday, hitting its lowest level in over four months as tariff risks heightened concerns about the global economy.
Yesterday St. Louis Federal Reserve Bank President Alberto Musalem, who was leaning hawkish recently, said recent consumer and housing data pose some downside risks.
John Williams of the Federal Reserve will speak at 1:20 central time.
Financial futures markets are predicting the Federal Open Market Committee will keep its fed funds rate unchanged at its March and May policy meetings.
However, it is likely that the Federal Open Market Committee will reduce its fed funds rate by 25 basis points two or three times in 2025.
In light of increasing probabilities of the FOMC more aggressively moving to accommodation this year, additional price gains for futures across the yield curve are likely.
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