Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
STOCK INDEX FUTURES
Stock index futures fell sharply yesterday after Federal Reserve Chair Powell in his testimony to the Senate Banking Committee warned the central bank may need to re-accelerate interest rate hikes. This is a notably different message after just less than five weeks ago when Powell on February 1 declared he could now say the “disinflationary process” had started.
Yesterday’s January consumer credit report showed an increase of only $14.8 billion when a gain of $24.6 billion was expected.
Mortgage applications in the U.S. were up 7.4% in the week ended March 3, 2023, which is the first increase in four weeks, and rebounding from 28-year lows hit last week, according to data from the Mortgage Bankers Association.
The national employment report from Automated Data Processing, Inc. showed employment increased 240,000 when a gain of 200,000 was anticipated.
The 9:00 central time January Job Openings and Labor Turnover Survey (JOLTS) report is predicted to be 10.6 million.
The Fed’s Beige Book on the economy will be released 1:00. This book is produced approximately two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Federal Reserve district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.
Federal Reserve Chair Jerome Powell is scheduled to testify before the House Financial Services Committee at 9:00 today.
CURRENCY FUTURES
The euro zone economy showed no growth in the final quarter of 2022, compared with preliminary estimates of 0.1% growth and an upwardly revised 0.4% expansion in the previous three-month period.
Industrial production in Germany advanced 3.5% month-over-month in January 2023, recovering from a downwardly revised 2.4% decline in December and above market expectations of a 1.4% increase.
The Bank of Canada will hold its policy meeting today and is set to become the first major central bank to hit pause on interest rates. The central bank will likely stick to its plan of holding its key interest rate steady.
The Bank of Japan’s latest policy decision is due Friday. The central bank is predicted to keep short term interest rates unchanged at negative 10 basis points.
INTEREST RATE MARKET FUTURES
Federal Reserve Chair Jerome Powell’s testimony yesterday pressured futures at the front and middle of the curve, while the 30 year Treasury bond futures traded higher, and there are follow- through gains in the 30-year Treasury bond futures today.
The Treasury will auction 10-year notes today.
In light of Fed Chair Powell’s comments yesterday, the Fed appears to be on track for a 50 basis point hike at the March 22 policy meeting.
The severely inverted yield curve is becoming even more inverted but continues to get very little attention.
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