Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
STOCK INDEX FUTURES
S&P 500 futures are higher for a third day.
Personal income in April increased 0.4% when a gain of 0.6% was expected.
Wholesale inventories in April were up 2.1% when up 2.0% was anticipated.
The 9:00 central time May consumer sentiment index is predicted to be 59.1.
S&P 500 futures are trading above a major downtrend line.
The most significant change this week in the fundamentals is the belief that the Federal Open Market Committee later this year will pause its fed funds rate hike schedule.
CURRENCY FUTURES
The U.S. dollar index is lower, remaining at the lowest level in a month, on the growing belief that the Federal Open Market Committee may be less hawkish later this year.
The euro currency is steady after news that loans to households in the euro area increased 4.5% year-on-year in April of 2022, which was the same pace as in the previous month and the fastest since October 2008.
The Japanese yen is firmer. The Tokyo May core consumer price index on the year was up 1.9% when a gain of 2.0% was estimated.
Interest rate differential expectations are turning neutral for the currency markets.
INTEREST RATE MARKET FUTURES
Minutes of the May 4 FOMC meeting released on Wednesday showed that most participants believed that 50 basis point rate hikes would be appropriate at each of the next two meetings in June and July to get on top of inflation. However, many officials thought big, early increases will allow room to pause later in the year to assess the effects of that policy tightening.
December 22 fed funds futures yesterday advanced to almost a 6-week high, suggesting the FOMC later this year may be less hawkish than previously expected.
Financial futures markets are predicting there is a 96.8% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and a 3.2% probability that the rate will increase by 75 basis points at the June 15 policy meeting.
The interest rate market futures appear to be making a bottom on the charts, and the fundamentals are improving.
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