Written Commentary
The Ghost in the Machine Q3 2023
September 19, 2023
STOCK INDEX FUTURES
Stock index futures are higher due to stronger than expected corporate earnings reports.
The first quarter gross domestic product declined 1.4%, which compares to the expected 1.1% increase.
Jobless claims in the week ended April 23 were 180,000 when 181,000 were anticipated.
The 10:00 central time April Kansas City Federal Reserve manufacturing index is predicted to be 39.0.
CURRENCY FUTURES
The U.S. dollar index advanced to new highs for the move, supported by expectations of a faster Federal Reserve policy tightening.
Interest rate differential expectations suggest higher prices are likely for the greenback.
The euro currency is lower despite news that Germany’s consumer price inflation rate is expected to climb to 7.4% in April from 7.3% in March. This is the highest level since 1981 and against market expectations for a slowdown to 7.2%.
Lower prices are likely for the euro.
The Japanese yen fell to a new 20-year low after the Bank of Japan at its policy meeting today reinforced its commitment to low interest rates despite rising inflation.
The BoJ said it would purchase 10-year Japanese government bonds at a yield of 0.25% every business day to ensure that the yield doesn’t exceed that level.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
The Canadian dollar declined on news that Canada’s CFIB’s Business Barometer long-term index, based on a 12-month business outlook, declined by 0.4 points to 64.9 in April of 2022.
The Australian dollar fell to its lowest level since February despite news that Australian consumer prices surged at their fastest annual rate in two decades, which spurred speculation that interest rates could be increased from record lows as soon as next week.
INTEREST RATE MARKET FUTURES
The Treasury will auction 7-year notes.
Currently there is a 96.5% probability of a 50 basis point increase and a 3.5% probability of a 25 basis point hike in the fed funds rate at the Federal Open Market Committee’s May 4 policy meeting.
Longer term, lower prices are likely across the board for the interest rate futures market as most major central banks are anticipated to tighten credit policies this year.
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