Written Commentary
STOCK INDEX FUTURES
Stock index futures closed mixed on Wednesday after the Federal Open Market Committee left its funds rate on hold, as expected. The fed funds rate remains at 5.25% – 5.50%. The Summary of Economic Projections indicated FOMC member expectations averaged a single interest rate cut of 25 basis points this year, which is fewer than the two rate cuts markets were anticipating. This hawkish revision came despite a softer-than-expected consumer price index report earlier in the day. Fed Chair Powell reiterated that the projections are only a “forecast” and don’t reflect a “really strong commitment to a particular rate path.”
Futures advanced today when the bullish May producer price index report was released. The PPI declined 0.2% when a 0.1% increase was expected, and on an annualized basis the PPI increased 2.2%, which compares to the predicted 2.5% increase. The producer price index excluding food and energy was unchanged when up 0.3% was estimated, and on an annualized basis increased 2.3% when a gain of 2.4% was anticipated.
Jobless claims in the week ended June 8 were 247,000 when 222,000 were expected.
The longer term fundamentals remain supportive to stock index futures.
CURRENCY FUTURES
The U.S. dollar index was higher in the overnight trade but quickly came off of the highs when the bearish producer price index report was released.
Industrial production in the euro area declined by 0.1% month-over-month in April 2024, which reverses the downwardly revised 0.5% growth in the previous month, and below the anticipated increase of 0.2%.
German wholesale prices declined 0.7% in May compared with the same month last year.
Australian employment outpaced expectations in May. Net employment increased 39,700 in May from April when market forecasts had been for a gain of 30,000. Full-time employment jumped 41,700. The jobless rate eased to 4.0% from 4.1%, which was in line with estimates.
The Bank of Japan will hold its policy meeting tomorrow. Analysts expect the BOJ will leave interest rates unchanged. The focus of attention will most likely be on the monetary policy statement and press conference.
INTEREST RATE MARKET FUTURES
Futures traded higher yesterday after the bullish consumer price index was reported. However, some of the gains were given back when the Federal Open Market Committee indicated the Fed is likely to lower interest rates only one time this year.
However, today prices are higher across the board in light of the decline in the producer price index in May when a small increase had been anticipated.
John Williams of the Federal Reserve will speak at 11:00 central time.
Financial futures markets are predicting there is a 70% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.
The long term fundamentals are bullish on balance, especially for futures at the long end of the yield curve.
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