Written Commentary
INTEREST RATE MARKET FUTURES
Futures are steady at the front end of the yield curve and are lower at the long end of the yield curve.
The slightly weaker than expected Empire State manufacturing index only marginally supported futures.
Recently, Chicago Federal Reserve Bank President Austan Goolsbee said mild June inflation readings make him more confident that price pressures are easing in a way that supports lowering interest rates.
In addition to Fed Chair Powell, Mary Daly of the Federal Reserve will speak at 3:35 PM.
Traders continue to believe the Federal Reserve will cut interest rates in September as June’s consumer prices fell short of expectations.
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.
In addition, the probability of an additional rate reduction from the FOMC has now been moved forward to the November 7 meeting where there is a 61% chance of another 25 basis point cut in the fed funds rate.
Futures at the short end of the yield curve are likely to lead the way higher for the interest rate futures complex.
STOCK INDEX FUTURES
Stock index futures are higher across the board.
The July Empire State manufacturing index was -6.6 when -6.0 was expected.
The main potentially market-moving event today is at 11:00 central time when Federal Reserve Chair Powell will participate in conversation hosted by the Economic Club of Washington.
The longer term fundamentals remain supportive to stock index futures.
CURRENCY FUTURES
The U.S. dollar index is a little higher, and there was limited reaction to the release of the Empire State manufacturing index, which was slightly bearish for the greenback.
Industrial production in the euro area fell 0.6% month-over-month in May 2024, which is better than market expectations of a 1.0% decline and after an unchanged reading in the previous month.
The European Central Bank will hold its policy meeting on Thursday, July 18. No change in interest rates is widely expected. However, financial futures markets are anticipating one to two interest rate cuts in 2024.
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