NFIB Small Business Optimism Index Increases

STOCK INDEX FUTURES

After making record highs yesterday stock index futures are mixed to higher today.

The NFIB Small Business Optimism Index in the U.S. increased to 93.7 in October, which is the highest level in three months. This compares to 91.5 in September and forecasts of 91.9.

The fundamentals and technicals continue to remain supportive to stock index futures.

CURRENCY FUTURES

The U.S. dollar index is higher and is trading at its highest level since the first week in May.

The fundamentals and technicals remain supportive to the U.S. dollar.

German investor morale declined in light of the collapse of the government in Berlin, which added uncertainty to Germany’s already ailing economy.

The ZEW Institute in Germany reported a decline in its economic sentiment index to 7.4 points from 13.1 points in October in a survey taken from November 4 to November 11. Analysts predicted the index would remain nearly unchanged at 13.

There are expectations that the European Central Bank will lower its key interest rates more aggressively than the Federal Reserve, putting pressure on the common currency.

The European Central Bank is expected to implement a 25 basis point interest rate cut at its December 12 policy meeting, with markets pricing in a reduction to 2.0% by June 2025.

Regular pay in the U.K., which excludes bonuses, increased 4.8% year-on-year in the three months to September 2024, which is a new low since June 2022. This is slightly higher than market estimates of 4.7%.

Bank of England chief economist Huw Pill said further interest rate cuts are likely to be a gradual process.

The Japanese yen is lower and continues to underperform after the Bank of Japan recently indicated a lack of urgency to hike interest rates.

INTEREST RATE MARKET FUTURES

Federal Reserve speakers today are Neel Kashkari at 1:00 and Patrick Harker at 4:00 PM.

Currently there is a 65% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its December 18 policy meeting, and there is a 35% chance that the FOMC will keep its key rate unchanged at 4.50% – 4.75%.

In a reversal from early last week, the fundamentals have turned neutral to slightly bearish for futures at the front end of the yield curve, and are neutral for futures at the long end of the yield curve.

It is likely that the FOMC will be slower to add accommodation in 2025 than the consensus view.

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