Written Commentary
CURRENCY FUTURES
The U.S. dollar index a sharply higher in light of the stronger than anticipated U.S. December employment numbers. Today’s advance in the greenback takes it to the highest level since November of 2022.
The long term fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.
It was recently reported that inflation in the euro zone increased to 2.4% in December from 2.2% in November. However, analysts believe this will not prevent the European Central Bank from cutting interest rates by 25 basis points later this month with markets currently pricing in a 96% probability of an interest rates cut.
The long term fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.
INTEREST RATE MARKET FUTURES
Futures quickly declined across the board in response to the stronger than expected U.S. employment data.
The March 30-year U.S. Treasury bond futures declined to the lowest level since November of 2023.
Philadelphia Federal Reserve Bank President Patrick Harker on Thursday said that while he expects the Fed to eventually cut rates, he does not foresee an immediate move.
Today St. Louis Federal Reserve Bank President Alberto Musalem said last month’s decision to cut interest rates was a “close call,” and he pushed for caution on further reducing interest rates.
There is a 97% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 3% chance of a 25 basis point reduction.
Today’s employment report pushed the timeline for a 25 basis point interest rate cut from the FOMC out to the June 18, 2025 policy meeting.
The U.S. economy is likely to perform well, which may cause the FOMC to be slower to add accommodation in 2025 than the consensus view.
Futures at the long end of the yield curve are likely to trend lower, while futures at the front end of the yield curve are likely to trade sideways.
STOCK INDEX FUTURES
Stock index futures quickly declined when the stronger than expected U.S. December employment report was released. Pressure on futures is due to the belief that a strong employment situation will influence the Federal Open Market Committee to be slower to add accommodation.
Nonfarm payrolls in December increased 256,000 when a gain of 157,000 was expected. Private payrolls were up 223,000 when up 130,000 was anticipated. Manufacturing payrolls declined 13,000 when an increase of 10,000 was forecast. The unemployment rate was 4.1%, which compares to the estimate of 4.2%.
The 9:00 central time January consumer sentiment index is expected to be 74.5.
Traders are closely watching the Federal Reserve’s 2025 policy outlook, focusing on the likelihood of fewer interest rate cuts. However, this bearish influence is likely to be offset by prospects of improving corporate earnings as the U.S. economy is likely to grow faster than the consensus view.
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