Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher despite the bearish June consumer price index report, which is a sign of strength.
The producer price index for June increased 0.2% when a gain of 0.1% was expected, and on a year-to-year basis the producer price index was up 2.6%, which compares to the anticipated gain of 2.3%.
The June producer price index excluding food and energy on a month-to-month basis increased 0.4% when up 0.2% was forecast, and on a year-to-year basis the producer price index excluding food and energy was up 3.0%, which compares to the estimated 2.3% increase.
The 9:00 central time July consumer sentiment index is estimated to be 68.5.
The longer term fundamentals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
The U.S. dollar index showed little reaction when the bullish U.S. producer price index was released, which is a sign of weakness for the greenback.
Wholesale prices in Germany declined 0.6% on a year-to-year basis in June, easing from a 0.7% drop in the previous month. This was the 14th consecutive month of declining producer prices.
The Japanese yen was sharply higher yesterday due to suspected intervention from Japanese monetary authorities. Recently the yen fell to a 38-year low against the U.S. dollar.
There are reports today that the Bank of Japan conducted rate checks with banks on the euro-yen cross, increasing prospects of additional intervention. Traders are looking forward to the BOJ’s policy meeting on July 31 when the central bank is expected to announce bond purchase tapering plans and possibly increase interest rates again.
CURRENCY FUTURES
Futures were lower in response to the bearish larger than expected increase in producer prices in June. However, prices have recovered, which is a sign of strength.
San Francisco Federal Reserve Bank President Mary Daly recently said she expects a further cooling in price pressures and the labor market, which supports the case for an easing policy.
Financial futures markets are predicting there is a 96% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.
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