Written Commentary
ADM Reports Q1 2024 Results
April 30, 2024
CURRENCY FUTURES
The U.S. dollar index is being supported by favorable interest rate differentials. However, gains were limited by flight to quality long liquidation.
The longer term trend for the U.S. dollar is higher since interest rate differentials have turned more favorable. The Federal Reserve is likely to remain restrictive for longer, while other major central banks will probably become accommodative sooner.
German industrial production is likely to fall again this year and exports will stagnate, according to a forecast from lobby group BDI. The industry association forecast a 1.5% decline in production in 2024.
The British pound is lower following dovish comments by Bank of England Deputy Governor Dave Ramsden on Friday. Markets now anticipate the first reduction in borrowing costs from the BOE occurring at the August meeting, which compares to the previously anticipated September meeting.
In the longer term, lower prices are likely for the euro currency and the British pound.
The Bank of Japan will hold its monetary policy meeting on Friday.
STOCK INDEX FUTURES
Stock index futures are higher due to easing tensions in the Middle East.
The March Chicago Federal Reserve national activity index was 0.15. In February the index was a revised 0.09.
The fundamentals in the short term are offsetting.
INTEREST RATE MARKET FUTURES
Futures are lower across the board as safe-haven assets are liquidated in light of easing tensions in the Middle East.
There are no speakers from the Federal Reserve today with the Federal Open Market Committee meeting’s blackout period in effect, which precedes a FOMC meeting.
Financial futures markets are predicting no change in the fed funds rate at the Federal Open Market Committee’s May, June and July meetings. However, there is a 66% probability of a rate reduction at the September 18 meeting.
I would not be surprised to see the probability of a fed funds rate cut at the September meeting diminishing as we get closer to that meeting.
The bearish influence of a Federal Reserve that is slow to pivot to accommodation may be offset from time to time by the possibility of a flight to quality flow of funds if geopolitical concerns intensify.
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