Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher despite the ongoing geopolitical risks, the hawkish Federal Reserve and the weak ADP employment report.
According to the ADP employment report, private businesses in the U.S. unexpectedly cut 301,000 workers in January of 2022. This was the first job loss since December of 2020 and the biggest since April 2020. Analysts were expecting a job gain of 225,000.
The 8:45 central time January PMI manufacturing final index is anticipated to be 55.5.
CURRENCY FUTURES
The U.S. dollar index is lower in response to the substantially weaker ADP employment report.
The euro currency is higher after a report showed euro zone inflation continued to increase for a seventh straight month to hit a new record high of 5.1% last month. Economists had expected a decline to 4.3%.
This increased expectations that the European Central bank will have to raise borrowing costs this year to address higher consumer prices. Although the central bank previously ruled out rate increases this year, money markets now expect a 30-basis point rate increase by December instead of 20-basis points before the inflation release, with the first 10-basis points hike by July, instead of September.
The ECB will announce its latest policy decisions tomorrow.
The Bank of England will hold its policy meeting tomorrow. Economists expect the Monetary Policy Committee to announce a 25 basis point hike, taking the bank rate to 50 basis points. Financial futures markets have priced in up to four Bank of England interest rate increases this year, which in the longer term, will likely support the British pound.
INTEREST RATE MARKET FUTURES
Many market participants now expect five fed funds rate hikes this year.
Some analysts believe that if the rate of growth in the U.S. economy slows, which today’s ADP employment report suggests, it may be difficult for the Federal Reserve to maintain its ramped-up hawkish policy stance.
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