Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher, boosted by strong quarterly corporate results.
Traders are now waiting for Federal Reserve Chair Powell’s appearance at the Volcker Alliance and Penn Institute for Urban Research Special Briefing and the IMF debate on the global economy today for any clues on the Fed’s next steps and outlook for inflation and interest rates.
Jobless claims in the week ended April 6 were 184,000 when 175,000 were expected.
The April Philadelphia Federal Reserve manufacturing index was 17.6, which compares to the anticipated 20.5.
The 9:00 central time March leading indicators report is estimated to show an increase of 0.3%.
The technical aspects are supportive, but countering this are geopolitical tensions and the hawkish Federal Reserve.
CURRENCY FUTURES
The euro currency was supported by the growing prospects of an early European Central Bank interest rate hike. An ECB governing council member said the ECB could raise interest rates in July. Money markets are now pricing in a 20 basis point increase from the ECB by July and more than 70 basis points of cumulative increases by the end of 2022.
Consumer prices increased 7.4% in the euro zone on the year in March after a 5.9% rise in February. Economists forecast euro zone inflation at 7.5% on the year in March.
The Japanese yen is lower. Yesterday the yen fell to its lowest level in nearly 20 years. Recent pressure on the yen is linked to the Bank of Japan’s commitment to maintain ultra-easy monetary policies, which contrast sharply with other major central banks that are hiking interest rates.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
INTEREST RATE MARKET FUTURES
The 30-year Treasury bond futures fell to new lows for the move yesterday and are lower today.
Yesterday’s release of the Fed’s “Beige Book” on the economy indicated that the outlook for future growth was clouded by the uncertainty created by recent geopolitical developments and rising prices.
James Bullard of the Federal Reserve will speak at 11:30.
Currently there is a 95.4% probability of a 50 basis point increase and a 4.6% probability of a 25 basis point hike in the fed funds rate at the Federal Open Market Committee’s May 4 policy meeting.
Lower prices are likely across the board for the interest rate futures market as most major central banks are anticipated to tighten credit policies this year.
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