Written Commentary
CURRENCY FUTURES
The U.S. dollar index is higher due to recent higher than expected U.S. inflation numbers. In addition, there is an element of flight to safety buying in light of increased tensions in the Middle East.
Bank lending to households in the euro zone increased by 0.2% year-on-year in March 2024, easing from the 0.3% increase in April. This was the slowest rate of credit growth since February 2015.
The Japanese yen weakened past 156 per U.S. dollar, declining to its lowest level May 1990 as the Bank of Japan held interest rates steady, which was widely expected. Traders continue to watch for signals from Japanese monetary authorities on whether they will intervene in the currency markets to halt the yen’s slide.
STOCK INDEX FUTURES
Yesterday’s pressure in stock index futures was primarily due to the higher than expected inflation numbers.
Futures are higher today due to better than expected corporate earnings reports.
Today’s March personal income report showed an increase of 0.5% as estimated, and personal consumption expenditures were up 0.8% when a gain of 0.6% was forecast.
The 9:00 central time April consumer sentiment index is predicted to be 77.9, and the year-ahead inflation expectations is predicted to be 3.1%.
INTEREST RATE MARKET FUTURES
Most futures declined yesterday to new lows for the move due to the larger than expected increase in inflation numbers.
There is some flight to quality buying today, which is offsetting the bearish U.S. inflation reports.
There are no speakers from the Federal Reserve today.
Financial futures markets are predicting no change in the fed funds rate at the Federal Open Market Committee’s May, June and July meetings. However, there is a 65% probability of a rate cut at the September 18 meeting.
I would not be surprised to see the probability of a fed funds rate cut at the September meeting diminishing as we get closer to that meeting.
The fundamentals remain bearish, and lower prices are likely. However, the downtrend is subject to the possibility of a flight to quality flow of funds if geopolitical concerns intensify.
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