Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher following the release of the U.S. employment numbers.
Nonfarm payrolls in July increased 187,000 when a gain of 200,000 was expected.
Private payrolls were up 172,000 when an increase of 175,000 was anticipated.
Manufacturing payrolls declined 2,000, which compares to the predicted 5,000 increase.
The unemployment rate was 3.5% when 3.6% was estimated.
Average hourly earnings increased 0.4% when up 0.3% was expected.
On balance, the employment data are slightly weaker than anticipated.
Stock index futures are overperforming on the upside, which suggests follow-through gains are likely .
CURRENCY FUTURES
Retail sales in the euro area were down 0.3% from a month earlier in June 2023, after a revised 0.6% increase in May, missing expectations of a 0.2% increase.
Factory orders in Germany unexpectedly increased 7.0% month-over-month in June 2023, easily exceeding market predictions of a 2.0% decline. However, much of the increase was due to sharp gains in the aerospace sector.
The minutes of the Reserve Bank of Australia’s latest policy meeting showed the central bank extended its inflation target timeline, indicating it could keep monetary policy restrictive. The RBA now sees inflation returning to the 2.0%-3.0% target range by the end of 2025. The RBA downgraded its economic growth forecasts to 0.9% this year from a previously predicted 1.2% increase.
INTEREST RATE MARKET FUTURES
Futures are higher in response to the 7:30 employment report.
Weakness in futures earlier in the week was due to expectations of increased Treasury offerings. The Treasury Department announced on Wednesday that it plans to gradually increase the size of its auctions and will issue $103 billion of securities next week, which is slightly more than predicted.
Financial futures markets are predicting there is an 81% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 19% probability of a 25 basis point increase.
The Federal Open Market Committee’s 25 basis point increase in its fed funds rate on July 26 is probably the last one in this cycle.
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