Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
STOCK INDEX FUTURES
Stock index futures are higher with NASDAQ futures at a record high and S&P 500 futures testing historical highs.
The 9:00 central time December existing home sales report is expected to show 3.82 million.
The 9:00 June consumer sentiment index is anticipated to be 69.2.
The fundamentals and technicals remain supportive to stock index futures despite recent talk of a potentially less dovish Federal Reserve this year.
CURRENCY FUTURES
The U.S. dollar index is lower. However, the greenback recently advanced as interest rate differentials are becoming more supportive, and it looks like the U.S. dollar may have bottomed.
Most central banks will probably be lowering interest rates this year (not the Bank of Japan). The U.S. Federal Reserve will likely become more accommodative, but at a slower than consensus view pace, while the European Central Bank and the Bank of England will probably be more aggressively easing credit conditions this year than the consensus view.
Producer prices in Germany declined 8.6% year-on-year in December 2023, which is more than market forecasts of an 8.0% drop and following a 7.9% decrease in November. This was the sixth consecutive month of decline.
U.K retailers reported the largest drop in sales for almost three years during December when retail sales volumes declined 3.2%. This was the biggest monthly decline since January 2021. The reading was worse than all the forecasts in a poll of economists, which had pointed to a 0.5% decline.
The annual inflation rate in Japan declined to 2.6% in December 2023 from 2.8% in the prior month, suggesting the Bank of Japan will keep its ultra-dovish monetary policy largely unchanged when it meets on January 23.
INTEREST RATE MARKET FUTURES
Federal Reserve speakers today are Mary Daly at 10:15, Michael Barr at 12:00 and Mary Daly again at 3:15.
Financial futures markets are predicting there is a 3.0% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at the January 31 policy meeting, and there is a 97.0% probability that the Fed will keep rates unchanged.
The chances of Fed rate cut in March are now only 53% after being 80% last Friday.
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