Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower primarily due to ongoing tensions between Ukraine and Russia. In addition, investors remain cautious ahead of the U.S. Federal Reserve’s policy statement due Wednesday, with officials set to signal their first interest rate increase since 2018.
The 9:00 central time January consumer confidence index is expected to be 111.9 and the 10:00 January Richmond Federal Reserve manufacturing index is anticipated to be 14.
Today is the first day of a two-day Federal Open Market Committee meeting.
Most likely there will be no surprises from the FOMC tomorrow. However, if there are any surprises they will most likely be on the dovish side.
The dominant influence now is the geopolitical risk, followed closely by the hawkish Federal Reserve.
CURRENCY FUTURES
Safe-haven flows of funds are supporting the U.S. dollar.
The euro currency declined despite news that German business sentiment improved after six months of declines. The Ifo business-climate index increased to 95.7 points in January from 94.8 points in December. The reading is above a consensus forecast of 94.7.
The Ifo index is based on a poll of approximately 9,000 companies in manufacturing, services, trade and construction.
The Confederation of British Industry’s quarterly gauge of manufacturing optimism in the UK dropped to -9 in the first quarter of 2022 from +2 in the previous three-month period, pointing to the weakest morale among manufacturers in a year.
In the longer term, a hawkish Bank of England will likely support the British pound. Financial futures markets have priced in up to four Bank of England interest rate hikes this year.
There was no flight to quality support again for the Japanese yen today, which is a sign of weakness.
An accommodative Bank of Japan will likely result in long-term pressure on the yen.
INTEREST RATE MARKET FUTURES
There was near record foreign demand for yesterday’s stellar two-year note auction. The bid-to-cover ratio was an impressive 2.811, which was the highest since April 2020 and was far above the six-auction average of 2.50.
The Treasury will auction five-year notes today.
Most analysts are predicting the FOMC will keep its fed funds rate unchanged at 0% to .25% at tomorrow’s policy meeting.
However, Federal Reserve officials will likely signal that they will raise interest rates in March for the first time in more than three years and shrink their balance sheet soon afterwards.
The International Monetary Fund has downgraded its global growth forecast for this year. In its delayed World Economic Outlook report, the IMF said it expects global gross domestic product to weaken from 5.9% in 2021 to 4.4% in 2022, with this year’s figure being 0.5 percentage points lower than previously estimated.
Some analysts believe that if the rate of growth in the U.S. economy slows, and also the global economy, it may be difficult for the Federal Reserve to maintain its recently ramped-up hawkish policy stance.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
