Written Commentary
CURRENCY FUTURES
The U.S. dollar index firmed due to this morning’s employment numbers.
Today’s gains in the greenback that were inspired by the U.S. employment report will probably mostly be given back later today.
Lower prices are likely for the U.S. dollar longer term.
The inflation rate in the euro area increased to 2.9% year-on-year in December 2023, which was slightly below the market consensus of 3.0%. The core inflation rate, which excludes volatile energy, food, alcohol and tobacco prices, fell to 3.4% from 3.6% in November. That reading compares to the consensus of 3.5%.
These smaller than expected inflation numbers in the euro area could lead to calls for earlier rate cuts by the European Central Bank.
Japan’s December service activity expanded at a faster pace. The final au Jibun Bank Service purchasing managers’ index climbed to 51.5 in December from 50.8 in November when it posted the slowest growth in 2023.
STOCK INDEX FUTURES
Nonfarm payrolls in December increased 216,000 when up 164,000 was expected, rising from a downwardly revised 173,000 in November.
Private payrolls increased 164,000 when a gain of 127,000 was anticipated.
The unemployment rate was 3.7%, which compares to the forecast of 3.8%.
Average hourly earnings increased 0.4% when a gain of 0.3% was predicted, and the average work week was 34.3 hours when 34.4 hours was anticipated.
The 9:00 central time November factory orders is forecast to show a 2.0% increase.
The 9:00 December Institute for Supply Management services index is expected to be 52.7.
The fundamentals and technicals remain supportive to stock index futures longer term despite recent talk of a potentially less dovish Federal Reserve in 2024.
INTEREST RATE MARKET FUTURES
Traders continue to believe the Fed will cut interest rates this year but not at the January meeting.
Thomas Barkin of the Federal Reserve will speak at 12:30.
Financial futures markets are predicting there is a 3.0% probability that the Federal Open Market Committee will reduce its fed funds rate by 25 points at its January 31, 2024 policy meeting and a 97% probability of no change.
In light of today’s U.S. employment numbers the probability of the FOMC lowering its fed funds rate at its March 20 is still likely but with a reduced probability.
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