STOCK INDEX FUTURES
Stock index futures were higher in the overnight trade, and there were continued gains when U.S. banks announced stronger than expected earnings in the fourth quarter of 2024.
There was additional strength when traders focused on the bullish December consumer price index excluding food and energy report, which showed a 0.2% increase when up 0.3% was expected. The headline consumer price index showed an increase of 0.4% when up 0.3% was anticipated.
The January Empire State manufacturing index was -12.6 when 1.0 was estimated.
The softer than forecast consumer price index report gives latitude to the Federal Open Market Committee to be more accommodative.
CURRENCY FUTURES
The U.S. dollar index was lower in the overnight trade, and there was additional pressure when the U.S. December consumer price index excluding food and energy increased less than estimated.
The greenback is likely to at least partially recover from this morning’s selling.
The long term fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.
Germany’s gross domestic product fell by 0.2% in 2024, following a 0.3% contraction in 2023, which was in line with market expectations.
Germany’s wholesale prices increased 0.1% year-on-year in December 2024, reversing a 0.6% decline in the previous month and marking the first advance since April 2023.
The annual inflation rate in the U.K. unexpectedly edged lower to 2.5% in December 2024 from 2.6% in November, which was below forecasts of 2.6%.
The long term fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.
Comments by Bank of Japan Governor Ueda suggested an interest rate increase is being considered.
INTEREST RATE MARKET FUTURES
Futures advanced when the U.S. December core consumer price index report showed a smaller than forecast increase. In addition, the weak Empire State manufacturing index report contributed to price gains for futures.
Federal Reserve speakers today are Neel Kashkari at 9:00 central time, John Williams at 10:00 and Austan Goolsbee at 10:00.
At 1:00 the Federal Reserve will release its Beige Book on the economy. This book is produced approximately two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Federal Reserve district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.
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.
The timeline for a 25 basis point interest rate cut from the FOMC has been pushed 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.
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