Written Commentary
INTEREST RATE MARKET FUTURES
Futures are lower across the board as flight to quality longs are liquidated in light of higher stock index futures.
The yield on the U.S. 10-year Treasury note remained above 4.35% on Tuesday, supported by strong economic data and hopes for a more targeted approach to tariffs.
John Williams of the Federal Reserve will speak at 8:05 central time.
Approximately three weeks ago there was a major change in the fundamentals and outlook for Federal Reserve policies. The probabilities are increasing that the central bank will more aggressively ease credit conditions this year.
Financial futures markets are predicting the FOMC will lower its key interest rate two more times this year with the first reduction at its June policy meeting.
An accommodative FOMC will underpin prices in the long term.
STOCK INDEX FUTURES
Stock index futures continue to advance after yesterday S&P 500, NASDAQ and Dow futures gapped higher. These gaps higher suggest there may be a major change in the fundamentals coming. Also, it is likely that these gaps are “breakout gaps” and not “exhaustion gaps.”
Currently traders are anticipating the new U.S. tariffs set to take effect on April 2 could be softer and more targeted than initially anticipated. President Donald Trump suggested on Friday that there could be “flexibility” in the plan, while weekend reports indicated that the tariffs may be narrower in scope, and could potentially spare some industries.
There are three 9:00 central time reports. The March consumer confidence index is expected to be 94.2. February new home sales are anticipated to be 679,000, and the March Richmond Federal Reserve manufacturing index is estimated to be 5.0.
In the longer term, a more accommodative Federal Open Market Committee will support futures.
CURRENCY FUTURES
The U.S. dollar index is lower as interest rate differentials remain bearish for the greenback.
The Ifo Business Climate indicator for Germany improved to 86.7 in March 2025, marking its highest level since July and aligning with market expectations.
The Confederation of British Industry’s retail sales gauge for the U.K. fell by 18 points to -41.0 in March 2025, which is the lowest level since April 2024 and significantly under market expectations of -28.0. This marked the sector’s sixth consecutive month of decline.
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