Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower, and there was limited reaction to the weaker than expected February producer price index report.
The producer price index for February was unchanged when up 0.3% was expected, and on a year-to-year basis the producer price index was up 3.2% when a gain of 3.4% was anticipated. The producer price index excluding food and energy on a month-to-month basis was down 0.1% in February when an increase of 0.3% was forecast, and on an annualized basis the producer price index increased 3.4% when a gain of 3.5% was predicted.
Jobless claims in the week ended March 8 were 220,000 when 230,000 were expected
In the longer term, a more accommodative Federal Open Market Committee will support futures.
CURRENCY FUTURES
The U.S. dollar index is higher despite the bearish producer price index report, which suggests the greenback will continue to advance at least in the short term.
Euro zone industrial output rebounded by 0.8% month-over-month in January 2025, beating market expectations of 0.6% growth and reversing a revised 0.4% decline in December.
Switzerland’s producer and import prices inched down 0.1% year-on-year in February 2025, following a 0.3% decline in the previous month. This marked the 22nd consecutive period of producer deflation.
The Japanese yen is higher and remains near five-month highs as uncertainty over President Donald Trump’s tariff plans continue to drive demand for the safe-haven yen. While the Bank of Japan is widely expected to keep rates steady at its March 19 policy meeting, policymakers remain on course for further tightening later this year.
INTEREST RATE MARKET FUTURES
There was limited reaction to the weaker than expected producer price index report.
There are no Federal Reserve speakers this week since the pre-FOMC ‘blackout’ period just started. The blackout period begins on the second Saturday before a Federal Open Market Committee meeting and ends on the Thursday following the meeting. The next FOMC policy meeting is scheduled for March 19.
The U.S. Treasury will auction 30-year bonds today.
There has been a major change in the fundamentals and outlook for Federal Reserve policies. The probabilities are increasing that the central bank will more aggressively ease credit conditions this year.
Financial futures markets are predicting the FOMC will keep its fed funds rate unchanged at its March and May meetings but will lower its key interest rate three more times this year with the first reduction at its June policy meeting.
In light of increasing probabilities of the FOMC more aggressively moving to accommodation this year, price gains for futures across the yield curve are likely.
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