Written Commentary
CURRENCY FUTURES
The U.S. dollar index is lower despite recent hawkish comments from Federal Reserve officials.
The euro currency firmed on news that the euro zone composite PMI increased to 54.4 in April 2023, which is the highest level since May last year and well above market expectations of 53.7.
Markets are now fully pricing in a 25 basis point rate hike from the European Central Bank at its policy meeting on May 4.
The S&P Global/CIPS U.K. Composite PMI increased to 53.9 in April 2023 from 52.2 in the previous month, which easily beats the market consensus of 52.5.
Additional Bank of England interest rate increases are likely after strong economic data. The next Bank of England policy meeting is scheduled for May 11.
Japan’s inflation continued to outpace expectations. Consumer prices, excluding fresh food, increased 3.1% in March from a year ago, matching the previous month. Economists had expected the inflation measure to ease to 3.0%. In spite of this increase in inflation, a majority of economists believe the Bank of Japan will not start unwinding its ultra-easy monetary policy at its April 28 meeting.
Interest rate differentials suggest lower prices for the U.S. dollar and higher prices for the euro currency.
STOCK INDEX FUTURES
Stock index futures are mixed to higher.
The 8:45 central time April PMI manufacturing index is expected to be 49.2 and the services index is anticipated to be 51.5.
Stock index futures have performed very well recently despite a variety of bearish news.
INTEREST RATE MARKET FUTURES
Cleveland Federal Reserve Bank President Loretta Mester said Thursday that interest rates need to increase above 5.0% given stubborn inflation but how much above 5.0% will depend on economic and financial developments.
Lisa Cook of the Federal Reserve will speak at 3:35.
Underlying support for futures remains due to the belief that central banks will not be able to keep raising interest rates much longer.
Markets are currently pricing in a 25 basis point rate increase at the Fed’s May 3 policy meeting. However, easier credit conditions from the Federal Reserve are likely later this year.
The technicals and fundamentals remain supportive.
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