Written Commentary
CURRENCY FUTURES
The U.S. dollar index is higher, and is being supported by the stronger than estimated housing starts and permits numbers.
The euro currency is lower despite news that Germany’s economic outlook improved. The ZEW Indicator of Economic Sentiment for the next six months jumped 11.8 points on the month to 31.7 in March, which was the highest level since February 2022. The latest report easily beat the consensus view of a smaller increase to 20.4. However, ZEW’s assessment of Germany’s current economic conditions improved only marginally by 1.2 points to minus 80.5.
European Central Bank Vice President Luis de Guindos said the ECB is ready to discuss rate cuts in June.
Financial futures markets are currently predicting in a 70% chance of the ECB lowering interest rates in June.
The Japanese yen depreciated past 150 per U.S. dollar, falling to its weakest levels in approximately two weeks even after the Bank of Japan raised interest rates from -0.1% to 0%, hiking for the first time since 2007 and ending eight years of negative interest rates. The central bank also abandoned its yield curve control policy and is no longer targeting 10-year bond yields.
The Reserve Bank of Australia maintained its cash rate at 4.35% at its policy meeting today as widely expected.
On Thursday the Bank of England will probably announce it is keeping its key interest rate unchanged at 5.25%.
The Swiss National Bank will likely announce on Thursday that it is keeping its key rate unchanged.
STOCK INDEX FUTURES
Stock index futures are lower as traders are cautious ahead of the Federal Open Market Committee’s monetary policy decision tomorrow.
Housing starts in February were 1.521 million when 1.449 million were expected, and building permits were 1.518 million when 1.500 million were anticipated.
Stock index futures have traded higher this year despite a Federal Reserve that is slow to pivot to accommodation.
The fundamentals are mostly bullish, while the technicals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
The Treasury will auction 20-year bonds today.
The Federal Reserve is anticipated to keep interest rates steady at its policy statement on Wednesday. The focus will be on new economic projections and any clues on the timing of a potential fed funds rate cut.
Financial futures markets are predicting there is a 1.0% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at the March 20 meeting, and there is a 99% chance that the Fed will keep rates unchanged.
Analysts are becoming more confident that any interest rate reductions will probably occur later in the year, especially after recent consumer price index and producer price index reports exceeded expectations.
The fundamentals and technicals remain bearish on balance for futures.
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