Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
CURRENCY FUTURES
Most of the recent strength in the U.S. dollar index is due to the hawkish Federal Reserve. In addition, there was some flight to quality buying coming in as a result of increased geopolitical concerns.
The U.S. dollar index is higher today, but is likely to give back most of today’s gains.
Interest rate differential expectations remain bullish for the greenback long term.
The euro currency is lower and not far from its weakest level since 2002, as investors scaled back probabilities of larger European Central Bank interest rate hikes.
The Swiss National Bank tightened its monetary policy by raising its policy rate by 75 basis points to 50 basis points.
The British pound is lower after the Bank of England hiked its key interest rate by less than expected. The key rate increased 50 basis points to 2.25% when most analysts were anticipating a 75 basis point hike.
The Japanese government intervened to support the yen for the first time since 1998, after the currency extended losses to fresh 24-year lows. The Bank of Japan maintained its key short-term interest rate at negative 10 basis points. Governor Kuroda said the central bank won’t be raising interest rates for some time.
STOCK INDEX FUTURES
Futures declined yesterday due to the Federal Open Market Committee’s on balance hawkish tone in its statement. The Fed hiked the fed funds rate by 75 basis points, as expected.
Jobless claims in the week ended September 17 were 213,000 when 220,000 were anticipated.
The 9:00 central time August leading indicators index is predicted to be unchanged.
The 10:00 September Kansas City Federal Reserve manufacturing index is estimated to be 2.0.
Fed Chair Powell will speak tomorrow at 1:00.
INTEREST RATE MARKET FUTURES
According to financial futures markets, there is a 35.5% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 64.5% probability that the rate will increase by 75 basis points at the November 2 policy meeting.
The inverted Treasury yield curve continues to warn of economic risks ahead.
The bearish influence of a hawkish Federal Reserve is overpowering the bullish influence of a weakening economy.
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