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 December Chicago Federal Reserve national activity index was negative 0.15 when 0.25 was expected.
The 8:45 central time January PMI composite flash index is anticipated to be 56.7.
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 was pressured after weaker-than-expected PMI data showed euro zone business activity growth slowed to an 11-month low. The IHS Markit euro zone Composite PMI declined to 52.4 in January 2022 from 53.3 in the previous month and slightly under market expectations of 52.6, a preliminary estimate showed.
The IHS Markit/CIPS U.K. Composite PMI edged lower to 53.4 in January 2022 from 53.6 in the previous month, missing market expectations of 55.0, according to a preliminary estimate.
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 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.
The Australian dollar declined after the release of PMI data today. The January numbers showed the IHS Markit Australian Composite PMI declined to 45.3 from 54.9 previously.
INTEREST RATE MARKET FUTURES
The 30-year Treasury bond futures are higher due to a flight to quality move.
The Treasury will auction two-year notes.
Despite recent weaker than predicted U.S. economic reports, Federal Reserve officials remain steadfast in their intentions to hike the fed funds rate three or four times this year.
The next Federal Open Market Committee meeting is scheduled for Wednesday, January 26. Most analysts are predicting the FOMC will keep its fed funds rate unchanged at 0% to .25% at that 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.
Financial futures markets are predicting the FOMC will hike its fed funds rate at the March 26 policy meeting by 25 basis points.
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.
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