Written Commentary
CURRENCY FUTURES
Last Friday the U.S. dollar index advanced to its highest level since August 16. However, prices are lower this week. Interest rate differentials remain supportive to the U.S. dollar.
German industrial production increased 2.9% in August from the previous month when a 0.8% gain was forecast.
President of the Bundesbank, Joachim Nagel, said he is willing to talk about an interest rate reduction at next week’s European Central Bank policy meeting. He said, “I want to wait until the actual meeting, but I am certainly open to considering the possibility of taking another interest rate step.”
In a recent poll over 90% of economists believe the European Central Bank will cut its deposit rate by 25 basis points on October 17 and again in December.
Japan’s inflation-adjusted wages declined in August, while household spending also fell.
INTEREST RATE MARKET FUTURES
Adriana Kugler of the Federal Reserve earlier today said she will support additional interest rate cuts if progress on inflation continues as expected.
In addition, Federal Reserve Bank of New York President John Williams suggested additional interest rate cuts will be appropriate over time.
The U.S. Treasury will auction three-year notes today.
Federal Reserve speakers today are Raphael Bostic at 11:45, Susan Collins at 3:00 and Philip Jefferson at 6:30 PM.
It is widely expected that the Federal Open Market Committee will reduce its key interest rate again at its November meeting. However, the Federal Reserve may less aggressively lower its fed funds rate.
Currently there is an 87% probability that the FOMC will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 13% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.
Futures are higher today at the short end of the yield curve and are lower at the long end of the yield curve.
Since it is widely anticipated that the Federal Reserve will continue to ease monetary conditions well into 2025, futures at the front end of the yield curve are likely to continue to gain on futures at the long end of the yield curve.
STOCK INDEX FUTURES
Stock index futures are higher today after yesterday’s disappointing start to the trading week due to increasing Treasury yields.
The National Federation of Independent Business Small Business Optimism Index in September was 91.5, missing forecasts of 91.7. This was the 33rd consecutive month the index was under the 50-year average of 98.
Traders are looking ahead to this week’s inflation reports. The September consumer price index report will be released on Thursday and is anticipated to show a 0.1% increase, and the September producer price index report will be released on Friday and is estimated to show a 0.2% advance.
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