Written Commentary
CURRENCY FUTURES
The U.S. dollar index is higher and is hovering near a two-week high in light of heightened geopolitical tensions in the Mid-East.
Longer term, the greenback is likely to drift lower due to prospects of a more aggressively accommodative Federal Reserve.
Second quarter gross domestic product In the euro zone expanded 0.3%, which is a little better than the 0.2% growth that was forecast by economists.
The British pound is lower in anticipation of the Bank of England’s upcoming monetary policy decision on August 1. Almost 50% of traders believe the Bank of England will begin its interest rate cutting cycle in August and reduce its key interest rate by 25 basis points to 5.0% from a 16-year high of 5.25%.
Japan’s jobless rate in June declined to 2.5% from the previous month, which compares with economists’ median forecast of 2.6%.
The Bank of Japan will hold its policy meeting tomorrow. There is speculation that the BoJ could hike its key interest rate by 10 basis points to 0.1%
INTEREST RATE MARKET FUTURES
The yield on the 10-year U.S. Treasury note held its recent decline to under 4.2%, which is near the lowest level since March.
There is a 96% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 5.25% to 5.50% at its July 31 policy meeting.
However, financial futures markets are pricing in three 25 basis point cuts in the fed funds rate later this year.
There is almost a 100% probability that the FOMC will lower its fed funds rate by 25 basis points at its September 18 meeting. In addition, the probability of an additional rate reduction from the FOMC at the November 7 meeting is 66%, and there is a 62% chance of another 25 basis point rate cut at the December 18 meeting.
Higher prices are likely for futures with the 5-year U.S. Treasury notes futures and the 10-year U.S. Treasury note futures likely to lead the interest rate market futures complex to the upside.
STOCK INDEX FUTURES
Stock index futures are mostly higher.
The 9:00 central time July consumer confidence index is anticipated to be 99.5, and the 9:00 June Job Openings and Labor Turnover Survey (JOLTS) is forecast to be 8 million.
Today is the first day of the two-day Federal Open Market Committee meeting.
Coming easier credit policies from the Federal Reserve will ultimately rescue this market.
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