Written Commentary
CURRENCY FUTURES
The U.S. dollar index weakened against a basket of major currencies on Wednesday as investors reassessed the outlook for U.S. monetary policy and growth. Data on Tuesday showed U.S. consumer confidence dropped to a nine-month low in April.
Germany’s GfK consumer climate indicator improved for a seventh consecutive month to -25.7 heading into May 2023, which is the highest level since April 2022 and compared with market forecasts of -27.9.
Markets are fully pricing in a 25 basis point rate hike from the European Central Bank at its policy meeting on May 4.
The Confederation of British Industry’s monthly retail sales balance increased to +5 in April from +1 in March, which is its highest level this year. However, expectations for May were slightly negative.
An additional Bank of England interest rate increase is likely when the central bank meets on May 11.
Economists believe the Bank of Japan will keep policies unchanged at its April 28 meeting.
The annual inflation rate in Australia fell to 7.0% in the first quarter of 2023 from an over-30-year high of 7.8% in the previous period, compared with market forecasts of 6.9%. It was the lowest level since the second quarter of 2022.
Longer term, 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 higher today despite renewed concerns about the banking system.
Durable goods orders in March were up 3.2% when an increase of 0.9% was expected.
Wholesale inventories in March increased 0.1% when up 0.2% was anticipated.
CURRENCY FUTURES
The U.S. dollar index weakened against a basket of major currencies on Wednesday as investors reassessed the outlook for U.S. monetary policy and growth. Data on Tuesday showed U.S. consumer confidence dropped to a nine-month low in April.
Germany’s GfK consumer climate indicator improved for a seventh consecutive month to -25.7 heading into May 2023, which is the highest level since April 2022 and compared with market forecasts of -27.9.
Markets are fully pricing in a 25 basis point rate hike from the European Central Bank at its policy meeting on May 4.
The Confederation of British Industry’s monthly retail sales balance increased to +5 in April from +1 in March, which is its highest level this year. However, expectations for May were slightly negative.
An additional Bank of England interest rate increase is likely when the central bank meets on May 11.
Economists believe the Bank of Japan will keep policies unchanged at its April 28 meeting.
The annual inflation rate in Australia fell to 7.0% in the first quarter of 2023 from an over-30-year high of 7.8% in the previous period, compared with market forecasts of 6.9%. It was the lowest level since the second quarter of 2022.
Longer term, interest rate differentials suggest lower prices for the U.S. dollar and higher prices for the euro currency.
INTEREST RATE MARKET FUTURES
The Treasury will auction 5-year notes today.
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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