Written Commentary
STOCK INDEX FUTURES
While the US equity market fell back in the late afternoon yesterday, prices recovered and reached a new all-time highs overnight in a technical move that reconfirms the bullish bias. Surprisingly, corporate earnings continue to support with rising global economic slowing evidence and nagging global inflation signals not discouraging buyers yet. However, the equity markets are likely to take temporary direction from US personal spending figures with economic fear of slowing still present despite strong consumer spending data from Visa and MasterCard. Obviously, the US equity market continues to see better economic conditions ahead with investors not disappointed with only two Fed members in favor of providing support for the economy. After this morning’s US jobs related data is released in the potentially very important US monthly PCE report is digested we see equities returning their focus to the prospect of favorable earnings.
CURRENCY FUTURES
With the US dollar posting another higher high for the move, US economic data holding stronger than non-US economic data, the trade expecting ongoing momentum in the flow of trade deals, the dollar looks to continue to benefit from short covering and perhaps a measure of fresh macroeconomic differential buying. Adding into the upward track in the dollar are comments from the US president indicating he likes a strong dollar but “you can’t sell anything with a strong dollar”. However, the dollar is seeing headwinds from the inability to make progress in South Korean trade talks and is likely to see some resistance because of a potential hardline US trade negotiation stance with India. Beyond trade and tariffs, it is possible the US is poised to take the most aggressive stance with India to increase pressure on Russia to end the war in Ukraine. In the end, economic data from Europe remains very poor, chart damage in nondollar currencies continues to unfold and seeing the US Fed remaining on hold and calling into question the potential for “two” US rate cuts before the end of the year leaves the dollar in an upward track.
INTEREST RATE MARKET FUTURES
In retrospect the treasury markets were discouraged by the reality of an on hold Fed even though market expectations for a move were statistically inconsequential. In direct response to US scheduled data early yesterday and Fed dialogue at midsession treasury prices fell back and in turn registered their disapproval. While the bullish tilt remains in place it is temporarily undermined despite news that to Fed members yesterday dissented against the “on hold” stance. Obviously, the US GDP report yesterday solidified chart resistance in treasuries with US growth head and shoulders above most competitors. On the other hand, a sharp drop in mortgage applications yesterday and a series of analyst concerns on affordability and limiting mortgage rates leaves the bull camp with some competence. Yesterday’s June US pending home sales also dropped by 0.8% which follows a massive 6.3% drop in April. Nonetheless, today’s US economic report slate is extremely active with jobs related data and inflation reports in several different forms. While ongoing claims remain elevated and are concerning, initial claims fell back in the range and traders expect positive US personal spending data following a strong earnings sweep from Visa and MasterCard earlier this week
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