Written Commentary
STOCK INDEX FUTURES
Stock index futures were mostly lower in the overnight trade due to weaker than expected corporate earnings reports and recent hawkish comments from Federal Reserve officials.
However, prices partially recovered when the 7:30 central time economic reports were released.
Durable goods orders in May increased 0.1% when unchanged was expected. However, durable goods excluding transportation declined 0.1% when a 0.1% increase had been anticipated. In addition, core capital goods orders fell 0.6%, which compares to the predicted 0.1% increase.
The revised gross domestic product in the first quarter on an annualized basis was up 1.4% as expected. However, personal consumption expenditures on an annualized rate were up only 1.5% when an increase of 2.0% was forecast.
Jobless claims in the week ended June 22 were 233,000 when 236,000 were estimated.
The 9:00 May pending home sales index is anticipated to show a 1.9% increase.
The 10:00 June Kansas City Federal Reserve manufacturing index is estimated to be -2.
The longer term fundamentals remain supportive to stock index futures.
CURRENCY FUTURES
The U.S. dollar index declined as a result of today’s U.S. economic reports, which were on balance weaker than analysts’ expectations.
The Japanese yen fell to its lowest level against the U.S. dollar since 1986. However, there was some recovery when Japan’s Finance Minister Shunichi Suzuki issued more warnings against extreme currency moves. He reiterated that one-sided yen moves are undesirable and that authorities would take appropriate steps when needed.
INTEREST RATE MARKET FUTURES
Today’s U.S. economic reports were on balance weaker than analysts’ expectations, which took prices higher.
Futures were pressured earlier this week due to hawkish comments from Federal Reserve officials, which indicated the central bank needs more confidence on the inflation outlook before lowering interest rates.
The U.S. Treasury will auction seven-year notes.
Financial futures markets are predicting there is a 64% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.
Despite many Fed officials predicting only one fed funds rate cut this year, and some predicting no rate reductions, financial futures markets are suggesting there will be two 25 basis point rate cuts in 2024.
The long term fundamentals are bullish on balance, especially for futures at the long end of the yield curve.
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