Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
STOCK INDEX FUTURES
Stock index futures are higher due to a better tone to the international banking situation.
The 9:00 central time February existing home sales report is expected to show 4.17 million.
The two-day Federal Open Market Committee meeting kicks off today, with investors increasingly expecting the Fed will deliver a smaller 25 basis point increase in the fed funds rate.
Futures have held up well considering recent strains in the international financial system.
CURRENCY FUTURES
Some flight to quality longs are being liquidated in the U.S. dollar.
The ZEW indicator of economic sentiment for the euro area declined by 19.7 points to 10 in March 2023, from a one-year high of 29.7 in the prior month and below market predictions of 16. This was the first decline in sentiment after five consecutive months of gains.
The ZEW indicator of economic sentiment for Germany fell by 15.1 points from a month earlier to 13 in March 2023, which is well under market expectations of 17.1. In addition, the assessment of the economic situation deteriorated slightly to -46.5 in March from -45.1 in February.
Construction output in the euro area increased 0.9% from a year earlier in January 2023, recovering from a downwardly revised 0.6% fall in the prior month.
The Bank of England is seen hiking interest rates by 25 basis points on March 23. Some analysts believe this could be the last increase from the BoE in this current policy tightening cycle.
The Reserve Bank of Australia indicated it will reconsider a case for an interest rate increase pause in April.
INTEREST RATE MARKET FUTURES
Flight to quality longs are being liquidated today.
The Treasury will auction 20-year bonds today.
Financial futures markets are suggesting the Federal Open Market Committee will hike its fed funds rate by 25 basis points at its policy meeting on March 22, and there is a smaller chance the central bank may make no change in interest rates.
Currently there is an 88% probability the FOMC will hike by 25 basis points and a 12% probability of no change in the fed funds rate.
The technicals and fundamentals for the June 30-year Treasury bond futures have become more supportive in the past two weeks.
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