Written Commentary
CURRENCY FUTURES
The U.S. dollar index declined for a fourth consecutive session, reaching its lowest level since November 7 in light of increasing concerns over the escalating trade war.
The European Central Bank Governing Council lowered three key interest rates by 25 basis points, as expected.
Euro zone retail trade declined 0.3% month-over-month in January 2025, following two months of unchanged and missing market expectations of a 0.1% increase.
The preliminary reading of the S&P Global/CIPS U.K. Construction Purchasing Managers’ Index declined to 44.6 last month from January’s 48.1, which is the weakest level since May 2020 and was under all forecasts of recent poll of economists.
The Japanese yen advanced and remains near 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, possibly at its July policy meeting.
INTEREST RATE MARKET FUTURES
Futures are higher at the front end of the yield curve and are lower at the long end of the yield curve.
Federal Reserve speakers today are Christopher Waller at 2:30 central time and Raphael Bostic at 6:00.
Yesterday’s release of the minutes from the January 29, 2025 Federal Open Market Committee meeting showed a majority of Federal Reserve policymakers acknowledged that the elevated level of uncertainty warranted a cautious approach when considering further adjustments to monetary policy.
The fundamentals have changed since the January FOMC meeting as the probabilities are increasing that the central bank will more aggressively ease credit conditions this year.
Financial futures markets are predicting the FOMC will keep its fed funds rate unchanged at its March meeting but will lower its key rate three more times this year with the first reduction at its May policy meeting.
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.
STOCK INDEX FUTURES
Stock index futures are lower across the board.
According to Challenger, Gray and Christmas, Inc., U.S. employers announced 172,017 job cuts in February 2025, which is the highest since July 2020, and compares to 49,795 in January.
Jobless claims in the week ended March 1 were 221,000 when 244,000 were expected.
Nonfarm productivity on an annual rate in the fourth quarter increased 1.5% when a gain of 1.2% was anticipated, and unit labor costs in the fourth quarter at an annual rate were up to 2.2% when an increase of 3.0% was estimated.
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.
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