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Retail Sales Weaker Than Expected

STOCK INDEX FUTURES

Futures are mostly higher today, after yesterday S&P 500 and NASDAQ futures advanced to new record highs.

Retail sales in May increased 0.1% when up 0.3% was expected.

Industrial production in May increased 0.9% when up 0.3% was anticipated, and capacity utilization was 78.7% when 78.6% was predicted.

The longer term fundamentals remain supportive to stock index futures.

CURRENCY FUTURES

The U.S. dollar index was higher in the overnight trade, continuing to benefit from a sharp depreciation in the euro currency in light of the political turmoil in Europe. However, pressure developed more recently in light of the smaller than expected increase in U.S. retail sales in May.

The euro area annual inflation rate was 2.6% in May 2024, which is up from 2.4% in April. A year ago the rate was 6.1%.

The ZEW Indicator of Economic Sentiment for the euro area increased by 4.3 points to 51.3 in June of 2024, which is the highest since July of 2021, and above market expectations of 47.8.

The ZEW Indicator of Economic Sentiment for Germany increased to 47.5 in June 2024, which is the highest since February 2022 from 47.1 in May, and compared with forecasts of 50. However, the current conditions subindex deteriorated to -73.8 from -72.3, missing predictions of -65.

The Japanese yen weakened despite hawkish remarks from Bank of Japan Governor Kazuo Ueda when he told the Japanese parliament that the central bank could raise interest rates again at the July meeting depending on upcoming economic data.

The Reserve Bank of Australia kept its cash rate steady at 4.35% at its policy meeting today, as expected.

 

INTEREST RATE MARKET FUTURES

Features were slightly lower in the overnight trade but quickly advanced when the weak U.S. retail sales report was released.

Yesterday Philadelphia Federal Reserve Bank President Patrick Harker said the U.S. Federal Reserve would be able to cut its benchmark interest rate once this year if his economic forecast plays out.

On Sunday Minneapolis Federal Reserve Bank President Neel Kashkari reaffirmed that it was a “reasonable prediction” to expect a single rate cut this year.

Federal Reserve speakers today are Thomas Barkin at 9:00, Susan Collins at 10:40, Alberto Musalem at 12:00, Lorie Logan at 12:00 and Austin Goolsbee at 1:00 PM.

The U.S. Treasury will auction 20-year bonds today.

Financial futures markets are predicting there is a 68% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting.

Despite many Fed officials predicting only one fed funds rate reduction this year, financial futures markets are suggesting a second interest rate reduction is likely before the end of the year.

 

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