Written Commentary
STOCK INDEX FUTURES
S&P 500 futures have finally seen a clear move above the June high at 3220.50 for a resumption of the uptrend.
U.S. stock index futures are higher as investors believe central banks and governments will do more to support the global economy.
S&P 500 futures and global equity markets jumped after European Union leaders reached a historic deal on a massive €750BN ($860BN) economic recovery plan. The originally scheduled Friday-Saturday meeting stretched into the early morning hours of today.
Fiscal stimulus discussions in Washington will continue this week before current programs are set to expire at the end of the month.
The Chicago Federal Reserve national activity index, which is a monthly index that tracks overall economic activity and inflationary pressures, was 4.11. This compares to the previous month’s revised 3.50.
Stock index futures continue to have upside momentum.
CURRENCY FUTURES
The euro currency is higher after E.U. leaders agreed to jointly borrow €750 billion ($857.8 billion) of funds for a fiscal stimulus package. In addition, an agreement was reached on the E.U.’s budget over the next seven years, amounting to €1074 billion. This is the largest ever joint borrowing undertaken by the E.U.
Reserve Bank of Australia Governor Lowe said inflation will stay low for quite some time and it is possible that the RBA could lower its key lending rate to 10 basis points.
INTEREST RATE MARKET FUTURES
U.S. Treasury and European bond yields showed limited reaction to a deal on the E.U.’s recovery fund, which will deploy billions of euros across its member states.
There are no Federal Reserve speakers scheduled for today.
According to financial futures markets there is a 95.6% probability that the Federal Open Market Committee will leave its fed funds rate unchanged at zero to 25 basis points at its July 29 policy meeting.
My analysis suggests there will be no change in the fed funds rate at the July meeting.
Futures appear to be caught between the bearish influence of more government stimulus and the bullish influence of ongoing historically accommodative central bank policies.
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