Written Commentary
STOCK INDEX FUTURES
Stock index futures were sharply lower in the overnight trade due to ongoing tensions in Eastern Europe, but were able to partially recover when the U.S. employment report was released.
Nonfarm payrolls in February increased 678,000 when a gain of 390,000 was expected. The unemployment rate was 3.8% when 3.9% was anticipated.
However, hourly average earnings disappointed at unchanged when up 0.5% was predicted.
The dominant influences remain geopolitical tensions followed by the hawkish Federal Reserve.
CURRENCY FUTURES
Flight to quality longs are being established in the U.S. dollar, as investors continue a flight to safety.
The U.S. dollar is now at its highest level since May 2020. Additional flight to quality buying is likely to come into the U.S. dollar.
The euro weakened to below $1.1000, which is a level not seen since May 2020 and was down more than 2.5% on the week.
Retail sales in the euro area edged up 0.2% month-to-month in January of 2022, as markets were expecting a stronger 1.3% increase.
Traders are cutting back on their expectations for European Central Bank rate hikes this year.
INTEREST RATE MARKET FUTURES
Flight to quality longs were established at the long end of the curve.
An increasing demand for U.S. dollars in Europe could be the reason for rising eurodollar interest rates and lower eurodollar futures.
Financial futures markets are predicting there is a 95.6% probability that the Federal Open Market Committee will hike its fed funds rate by 25 basis points and a 4.1% probability that the rate will remain unchanged at 0 to 25 basis points at its March 16 policy meeting. The probability for a 50 basis point hike is virtually zero. A few weeks ago the probability of a 50 basis point rate increase was over 50%.
Some analysts believe that if the rate of growth in the U.S. economy slows, and also globally, it may be difficult for the Federal Reserve and other major central banks to maintain ramped-up hawkish policies.
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