Written Commentary
Global equity markets were higher overnight while US equities started off with minimal declines. Critical economic news released overnight included a hotter than expected Spanish CPI for December, a much stronger than expected Swiss KOF Leading Indicator report for December, and a much stronger than expected Spanish retail sales reading for November (year-over-year).
STOCK INDEX FUTURES
While many global markets were higher overnight, the Japanese and US markets were off slightly, leaving the short term bias pointing downward. Even though the markets attach a minimal 16% probability to a January 28th US rate cut, a hawkish bias from today’s Fed meeting minutes release should have a modest negative impact on stock prices, as the trade already thinks the Fed is on hold until March! However, a very soft Dallas Fed manufacturing index yesterday combined with news that China has ordered companies to utilize at least 50% of domestically manufactured machinery/equipment is an undermine for US stock prices this morning. Another minor negative for stocks is a slight downtick in Ukraine peace hopes with Russia accusing Ukraine of attacking the Russian President residence overnight.
CURRENCY FUTURES
While the downtrend in the dollar remains in place, the current bounce has caused some doubt with respect to the trend. In fact, a development that could injure the dollar is the president’s threat yesterday to bring a lawsuit against the US Federal Reserve Chairman for gross incompetence with respect to renovations at Fed headquarters. However, US economic data continues to favor dollar bears and the recovery off last week’s 2 ½ month low is more than likely a temporary “bounce”. Unfortunately for the bear camp, the FOMC release today could extend the current “bounce”.
INTEREST RATE MARKET FUTURES
While March bonds did not make a higher high in the overnight trade, the market has generally held the gains forged over the prior four trading sessions, which leaves prices near 12 day highs. The market is likely garnering support from yesterday’s softer than expected Dallas Fed manufacturing business index reading for December, which posted the softest reading since June. Countervailing the Dallas Fed readings was yesterday’s US Pending Home sales which reached 36 month highs as that in turn could provide an upside surprise for today’s housing price data However, this morning’s US Housing Price Index reading for October is expected to be largely unchanged and expectations call for a decline in the Case-Shiller Home Price Index reading for October.
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