Written Commentary
CURRENCY FUTURES
The U.S. dollar index continues to come under pressure in light of increasing prospects of a more accommodative Federal Reserve monetary policy this year.
The euro area annual inflation rate was 2.5% in June 2024, which is down from 2.6% in May. A year ago the rate was 5.5%.
The European Central Bank will hold its policy meeting tomorrow. No change in interest rates is widely expected. However, financial futures markets are anticipating at least one more interest rate cut in 2024.
The annual inflation rate in the U.K. was unchanged at 2.0% in June, which Is unchanged from May. This compares to forecasts of 1.9%. This is causing traders to reduce their expectations that the Bank of England will cut interest rates at its policy meeting on August 1, which would be the first rate reduction since 2020.
The Japanese yen advanced to its highest level in over one month as traders adjusted their outlook the Bank of Japan’s monetary policy.
STOCK INDEX FUTURES
Stock index futures are lower due to prospects of increased U.S. trade restrictions in the high tech area.
Housing starts in June on an annualized basis were 1.353 million when 1.305 million were expected, and permits were 1.446 million when 1.395 million were anticipated.
The 8:15 central time June industrial production report is estimated to be up 0.3%, and capacity utilization is forecast to be 78.5%.
INTEREST RATE MARKET FUTURES
Federal Reserve speakers today are Thomas Barkin at 8:00 and Christopher Waller at 8:35.The U.S. Treasury will auction 20-year bonds.
At 1:00 the Federal Reserve will release its Beige Book on the economy.
Traders continue to believe the Federal Reserve will cut interest rates in September after last week’s weaker than anticipated consumer confidence report.
Financial futures markets are predicting there is 98% 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 moved forward to the November 7 meeting where there is a 60% 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.
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