Written Commentary
STOCK INDEX FUTURES
Obviously, the equity markets are surging in hopes of less predatory US regulatory overreach and hope for a more favorable business operating environment. It is also likely that US equities have rekindled optimism toward tomorrow’s widely anticipated US rate cut and with the fog of the election dissipating that should allow risk-averse investors to return to the market. Furthermore, there will likely be some “FOMO” (fear of missing out) buying and some “relief buying” from the hope that historical uncertainty will begin to moderate. The bull camp is probably embracing favorable results from the tech sector, improved sentiment toward financial companies and from strength in Tesla shares.
CURRENCY FUTURES
In addition to the significant short-term oversold status of the dollar (from a five day high to low washout of 130 points), the rally in the dollar has taken on added momentum from a “gap higher”, low to high bounce of 200 index points. Obviously, the sharp surge in US treasury yields is attracting capital to the US with dollar strength particularly benefiting from weakness in Chinese and Mexican currencies. The strength in the dollar this morning is so dominating that generally favorable European PMI data has been summarily discounted. However, Euro zone price index readings for September fell 0.6% which points to falling euro zone inflation and perhaps signs that the European economy has pockets of weakness. From a long-term perspective, the trade should increase concerns of emerging market currency problems, as massive strength in the dollar in the past has resulted in problems for smaller economies and their currencies.
INTEREST RATE MARKET FUTURES
Apparently, a decisive GOP victory has prompted the highest treasury bond yields since late May. According to Reuters reports from Southeast Asia, the treasury market is fearful that the US balance sheet will weaken. While there are concerns that a GOP controlled government will prompt serious changes at the US Federal Reserve that thinking could be misguided as Trump has consistently promised to fight inflation and is expected to name Elon Musk as a government efficiency expert which could result in budget savings from the reduction of excess government waste. In the short term, the US Federal Reserve begins its policy meeting today with a 25 basis point rate cut expected tomorrow. Today’s US economic report slate is very thin with mortgage applications unlikely to impact treasury prices and the 30-year bond auction at midsession likely to see improved demand given the sharp jump in yields.
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