Written Commentary
ADM Corporate Sustainability Report 2023
May 16, 2024
STOCK INDEX FUTURES
The dovish Federal Open Market Committee statement and Federal Reserve Chair Powell’s dovish press conference temporarily supported prices yesterday. The U.S. central bank maintained borrowing costs at 5.25%-5.50% for the sixth consecutive time. Fed Chair Powell indicated that it might take longer than expected to start reducing interest rates due to stubbornly high inflation. However, he dismissed talk of pivoting back to interest rate increases.
Jobless claims in the week ended April 27 were 208,000 when 211,000 were expected.
Annualized nonfarm productivity in the first quarter increased 0.3% when up 0.9% was anticipated, and unit labor costs were up 4.7% when a gain of 3.3% was anticipated.
The 9:00 central time March factory orders report is estimated to show a 1.6% increase.
CURRENCY FUTURES
The U.S. dollar index declined after yesterday’s Federal Open Market Committee statement and Powell’s dovish on balance press conference.
Now that the FOMC meeting is out of the way the greenback is likely to trade higher.
The annual inflation rate in Switzerland increased to 1.4% in April 2024, accelerating from 1.0% in March and coming above market forecasts of 1.1%. This marked the highest reading since December 2023.
HCOB’s final euro zone manufacturing Purchasing Managers’ Index fell to 45.7 in April from March’s 46.1, and was only a little better than a 45.6 preliminary estimate.
The likelihood of an interest rate cut by the Bank of England in August has diminished, with markets fully pricing in a first rate reduction in September.
The Japanese yen advanced due to another suspected round of intervention by Japanese monetary authorities.
INTEREST RATE MARKET FUTURES
Futures prices increased yesterday, especially at the long end of the curve, due to the Federal Open Market Committee’s statement and remarks from Powell, along with the Fed’s plan to taper its quantitative tightening program by more than expected.
The Fed has declared its intention to reduce the pace of its quantitative tightening starting from June 1. An adjustment will involve cutting the maximum amount of Treasury securities being removed from the balance sheet by over 50%, which would be down to $25 billion monthly from the previous $60 billion.
Despite yesterday’s FOMC the fundamentals remain bearish on balance, especially for futures at the short end of the yield curve, and lower prices are likely.
However, the downtrend is subject to the possibility of a flight to quality flow of funds if geopolitical concerns intensify.
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