Written Commentary
CURRENCY FUTURES
The U.S. dollar fell to its lowest level since July 28, 2023. The greenback has been under pressure on expectations that the Federal Reserve will start cutting rates earlier than other central banks including the European Central Bank.
The European Central Bank is also anticipated to reduce borrowing costs next year but at a slower pace than the Federal Reserve.
Lower prices are likely for the U.S. dollar longer term and higher prices are likely for the euro.
Japan’s housing starts declined 8.5% year-on-year in November 2023, which is steeper than the 6.3% decline in the prior month and worse than market forecasts of a 4.3% decline. This was the ninth time of a decline in new construction starts since the beginning of the year and the fastest pace since August.
STOCK INDEX FUTURES
Stock index futures are mixed to higher.
The 9:00 central time December Richmond Federal Reserve manufacturing index is expected to be -6.0.
The fundamentals and technicals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
Futures are mostly higher and have recently been supported by the belief that the Federal Reserve will be cutting interest rates next year.
The yield on the U.S. 10-year Treasury note declined further to 3.85%, hovering near its lowest level since late July.
The Treasury will auction five-year notes today.
Financial futures markets are predicting there is a 15% probability that the Federal Open Market Committee will reduce its fed funds rate by 25 points at its January 31, 2024 policy meeting and an 85% probability of no change.
However, financial futures markets are currently suggesting the Federal Open Market Committee will reduce its fed funds rate by 25 basis points at its March 20, 2024 policy meeting
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