Written Commentary
CURRENCY FUTURES
The U.S. dollar index is trading higher. However, gains were limited by the weak ADP employment report.
Interest rate differentials expectations are neutral for the U.S. dollar as major central banks this year are likely to lower key interest rates.
Producer prices in April in the euro zone fell 1.0% on the month, which compares to estimates of a 0.5% decline, and on an annualized basis the producer price index declined 5.7% when down 5.3% was predicted.
Japan’s 10-year government bond yield fell back under 1.0%, hitting two-week lows.
There are reports that the Bank of Japan is considering reducing bond purchases as early as at the June meeting, which takes place on June 13 and 14.
The Bank of Canada will hold its policy meeting today, and a rate cut of 25 basis points is expected.
The Australian economy expanded 0.1% on a quarterly basis in the fourth quarter of 2023, slowing from a 0.3% increase in the preceding quarter and missing market forecasts of 0.2%.
STOCK INDEX FUTURES
Stock index futures are higher.
The May Automated Data Processing, Inc. employment report showed an increase of 152,000 when up 173,000 was expected.
The 8:45 central time May PMI composite is anticipated to be 54.4.
The 9:00 May Institute for Supply Management services index is predicted to be 50.7.
The short term outlook has become neutral, as the bullish influence of pressure on the Federal Reserve to lower interest rates is being offset by the bearish influence of increasing prospects of a weaker U.S. economy.
INTEREST RATE MARKET FUTURES
Futures are higher across the board.
There are no major speeches from Federal Reserve officials due to the blackout period before the June 12 Federal Open Market Committee monetary policy decision.
Financial futures markets are predicting there is a 67% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.
The fundamentals are becoming more bullish due to increasing indications that the U.S. economy is weakening. In addition, there is growing pressure on the Federal Reserve to ease monetary policies.
Higher prices for futures are likely, especially futures at the long end of the curve.
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