Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
CURRENCY FUTURES
The U.S. dollar is higher in a flight to quality move.
Industrial production in the euro area increased by 0.7% from a month ago in January 2023, partially recovering from a revised 1.3% decline in December and beating market expectations of 0.4% growth.
The Ifo economic institute said in the first quarter, Germany’s gross domestic product is expected to contract by 0.2%. The economy contracted by 0.4% in the fourth quarter of 2022 compared with the previous three months.
The institute forecast economic output in 2023 will remain at approximately the same level as the previous year, contracting by 0.1%.
STOCK INDEX FUTURES
Stock index futures are lower following weaker European equity markets.
The February producer price index declined 0.1% when an increase of 0.3% was expected.
Retail sales in February were down 0.4% when down 0.3% was anticipated.
The March Empire State Manufacturing index was negative 24.6 when negative 7.7 was predicted.
The 9:00 central time March housing market index is predicted to be 41, and the 9:00 January business inventories report estimated to be unchanged.
INTEREST RATE MARKET FUTURES
Flight to quality longs are being established again today.
A week ago the Federal Reserve was on track for a 50 basis point hike in its fed funds rate at the March 22 policy meeting. However, there has been a shift in expectations.
Financial futures markets are now suggesting the Federal Open Market Committee will hike its fed funds rate by 25 basis points at its meeting next week, and there is a smaller chance the central bank may make no change to interest rates.
Currently there is a 60% probability the FOMC will hike by 25 basis points and a 40% probability of no change in the fed funds rate.
The technicals and fundamental for the June 30-year Treasury bond futures have become more supportive in the past seven trading sessions.
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