Written Commentary
CURRENCY FUTURES
The U.S. dollar index is higher but remains near the two-month lows as traders assess the risks of a potential escalation in the trade war.
Germany’s GfK Consumer Climate Indicator declined to -24.7 heading into March 2025 from a slightly revised -22.6 in the previous period, missing market estimates of -21.4 and dropping for the second consecutive month. This marked the lowest level since last April.
Financial futures markets are predicting the Bank of England will lower its key interest rate at its March policy meeting despite the recently released hotter than expected U.K. consumer prices report.
The Japanese yen is holding near its highest level in 12 weeks, underpinned by expectations that the Bank of Japan will continue raising interest rates this year following upside surprises in fourth-quarter inflation.
Australian headline consumer price index inflation increased 2.5% year-on-year in January, which was slightly below expectations of 2.6% and remained steady from the prior month. The consumer price index excluding volatile items increased 2.9% in January, which is up from 2.7% in the prior month.
INTEREST RATE MARKET FUTURES
Futures are lower at the front end of the curve and are higher at the long end of the yield curve.
The March 30-year U.S. Treasury bond futures advanced to the highest level since December 12, 2024.
The yield on the U.S. 10-year Treasury note stabilized near 4.29% on Wednesday as investors await key economic data to provide more clarity on the outlook.
Raphael Bostic of the Federal Reserve will speak at 11:00.
The U.S. Treasury will auction seven-year notes today.
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, financial futures markets are predicting the Federal Reserve will reduce its fed funds rate by 25 basis points at its June meeting.
The fundamentals and technical aspects have weakened for futures at the front end of the yield curve and are bullish for futures at the long end of the curve.
STOCK INDEX FUTURES
Stock index futures are higher today but remain in a broadly based sideways congestion pattern since December 2024.
The 9:00 central time January new home sales report is expected to show 680,000.
Traders are now focused on this week’s second estimate of fourth-quarter gross domestic product growth, which is anticipated to be up 2.3%, and the January PCE price index report, which is the Federal Reserve’s preferred inflation measure and is estimated to be up 0.4% on a month- to-month basis.
In the longer term, 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.
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