Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
STOCK INDEX FUTURES
Stock index futures are lower due to Federal Reserve officials’ comments on reduced hopes for a slowdown in interest rate increases.
Housing starts in October were 1.425 million when 1.410 million were expected and permits were 1.526 million when 1.516 million were anticipated.
Jobless claims in the week ended November 12 were 222,000 as predicted.
The November Philadelphia Federal Reserve manufacturing index was negative 19.4 when negative 7.0 was estimated.
The November Kansas City Federal Reserve manufacturing index will be released at 10:00. In October the index was negative 7.0.
Despite lower prices today, the fundamentals and technicals for stock index futures are improving.
CURRENCY FUTURES
The U.S. dollar index is higher but remains near its lowest level since August 15.
The U.S. dollar has underperformed in the last two months as interest rate differential expectations have turned against the greenback.
There is speculation that European Central Bank policy makers may slow down interest rate hiking with only a 50 basis point increase next month.
The British pound extended losses when Chancellor Jeremy Hunt said the U.K. economy is set to shrink further next year.
Japan’s exports increased for the 20th consecutive month in October. Exports rose 25.3% in October from a year earlier, which was weaker than September’s 28.9% increase and the 29.9% increase forecast by economists.
Australia’s unemployment rate declined in October to 3.4%, which is the lowest since November 1974, from 3.5% in September, with the economy adding 32,200 jobs. Economists expected the jobless rate to increase to 3.6%.
INTEREST RATE MARKET FUTURES
Futures are lower after Federal Reserve Bank of St. Louis President James Bullard yesterday urged policymakers to raise interest rates further, saying the level will need to be higher to meet the central bank’s goal to be “sufficiently restrictive” to bring down inflation.
The yield curve inversion continues to widen. Yesterday the spread between the 2-year and 10-year yields was at its deepest inversion in over 40 years.
Federal Reserve speakers today are Michelle Bowman at 8:15, Loretta Mester at 8:40, Neel Kashkari at 9:40 and Neel Kashkari again at 12:45.
In spite of lower prices today, the technicals and fundamentals are looking more constructive for the interest rate market futures.
According to financial futures markets currently, there is an 83.0% probability that the Federal Open Market Committee will increase its fed funds rate by 50 basis points at the December 14 meeting and a 17.0% probability that the rate will be hiked by 75 basis points.
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