Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
CURRENCY FUTURES
The U.S. dollar index advanced in the overnight trade. The better than expected U.S. gross domestic product growth also supported the greenback.
Retail sales in Germany declined by 1.9% month-on-month in February after falling 0.4% in January. Economists forecast retail sales would advance by 0.3%.
The weak German retail sales report increased probabilities of a June European Central Bank interest rate cut.
The number of people out of work in Germany increased less than expected in March. The number of unemployed grew by 4,000 in seasonally adjusted terms to 2.719 million. Analysts had anticipated that figure to rise by 10,000.
The Japanese yen steadied near 151 per U.S. dollar, recovering slightly after declining to new 34-year lows earlier this week, as Japanese monetary authorities signaled their readiness to intervene in the currency markets to support the yen. Finance minister Shunichi Suzuki recently warned that “decisive steps” would be taken against excessive currency moves.
STOCK INDEX FUTURES
Stock index futures are higher.
The fourth quarter gross domestic product increased 3.4% when up 3.2% was expected, and personal consumption expenditures were up 3.3% when a gain of 3.0% was anticipated
Jobless claims in the week ended March 23 were 210,000 when 213,000 were estimated.
The 8:45 central time March Chicago PMI is forecast to be 46.0.
The 9:00 March consumer sentiment index is expected to be 76.5, and the February pending home sales index is anticipated to be up 1.3%.
The Kansas City Federal Reserve manufacturing index for March will be released at 10:00. In February the index was -4.0.
Federal Reserve Chair Powell will speak on Friday at 10:30. Traders will be scrutinizing his comments for clues on the central bank’s next policy steps.
The fundamentals are mostly bullish, while the technicals remain supportive to stock index futures.
INTEREST RATE MARKET FUTURES
The better than expected U.S. gross domestic product report put some pressure on futures.
Financial futures markets are predicting there is a 6.0% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at the May 1 policy meeting, and there is a 94.0% chance that the Fed will keep rates unchanged.
The consensus view currently is that the FOMC will lower its fed funds rate three times this year starting in June. My view is that only two cuts are likely this year.
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