Written Commentary
STOCK INDEX FUTURES
December S&P 500 futures advanced yesterday to new record highs.
Futures are lower today in light of today’s economic reports.
The September consumer price index increased 0.2% when up 0.1% was expected, and on a year- to-year basis increased 2.4% when an advance of 2.3% was anticipated.
The consumer price index excluding food and energy advanced 0.3% against the estimate of up 0.2%, and the consumer price index excluding food and energy on a year-to-year basis advanced 3.3%, which compares to the forecast of an increase of 3.2%.
Jobless claims in the week ended October 5 were 258,000 when 226,000 was forecast.
The September producer price index report will be released on Friday and is estimated to show a 0.2% advance.
CURRENCY FUTURES
The U.S. dollar index advanced to its highest level since August 13.
Interest rate differentials remain supportive to the U.S. dollar.
Retail sales in Germany increased 1.6% month-over-month in August, following a 1.5% advance in July.
Almost 86% of Japanese households expect prices to increase a year from now, according to a Bank of Japan quarterly survey. The ratio of households that anticipate prices will increase a year from now were at 85.6% in September, which is down from 87.5% in the previous survey taken three months ago. Of the total households surveyed, 83.6% said they believe prices will increase five years from now, which is up from 82.0% in the previous survey in June.
Bank lending in Japan in September increased 3.1% on a year-to-year basis.
INTEREST RATE MARKET FUTURES
This morning’s economic reports supported futures at the front end of the yield curve and pressured futures at the long end of the curve.
Yesterday’s release of the minutes from the September 18 Federal Open Market Committee policy meeting revealed policymakers were divided on how aggressively to reduce interest rates, but decided on a 50 basis point reduction. The minutes revealed an unspecified number of officials believed a smaller interest rate cut last month would have been warranted.
The U.S. Treasury will auction 30-year bonds today.
Federal Reserve speakers today are Lisa Cook at 8:15, Thomas Barkin at 9:30 and John Williams at 10:00.
It is widely expected that the FOMC will reduce its key interest rate again at its November meeting.
Currently there is a 91% probability that the FOMC will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 9% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.
Futures at the front end of the yield curve are likely to continue to gain on futures at the long end of the yield curve.
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