Written Commentary
CURRENCY FUTURES
The U.S. dollar index advanced in a flight to quality move due to concerns over the health of the banking sector.
The euro currency was pressured by further evidence of an economic slowdown in the euro zone, limiting the possibility that the European Central Bank will extend its tightening cycle at its September 14 policy meeting.
German inflation eased in July. German consumer prices, harmonized to compare with other European Union countries, increased by 6.5% on the year in July. This follows a 6.8% increase in June.
Japanese real wages fell for a 15th consecutive month in June, while nominal pay growth also slowed. Inflation-adjusted real wages declined 1.6% from a year earlier, which is a faster decline than May’s 0.9% drop, extending a period of contractions since April 2022.
STOCK INDEX FUTURES
Stock index futures are lower with bank shares under pressure after Moody’s cut credit ratings for 10 small and midsize lenders and said it may downgrade some of largest banks.
The National Federal of Independent Business Small Business Optimism Index was 91.9 in July, which compares to the expected 90.6.
The 9:00 central time wholesale inventories report is anticipated to show a 0.3% decline.
Stock index futures will probably not see much recovery today.
INTEREST RATE MARKET FUTURES
Government bond yields retreated globally, with the U.S. 10-year Treasury note yield falling below 4.0%, as concerns about the banking sector re-emerged.
There was additional support for futures when Federal Reserve Bank of Philadelphia President Patrick Harker suggested interest rate hikes may be near an end.
Most market participants still see the Federal Reserve leaving its fed funds rate steady when it meets next month.
Financial futures markets are predicting there is an 87% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 13% probability of a 25 basis point increase.
The Federal Open Market Committee’s 25 basis point hike in its fed funds rate on July 26 is probably the last one in this cycle.
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