Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
CURRENCY FUTURES
The U.S. dollar index is lower and remains near its lowest level since August 15.
In the last two months interest rate differential expectations have turned against the greenback.
The European Central Bank is seen tightening monetary policy further to address high inflation, despite fears of an economic slowdown. ECB President Christine Lagarde said the central bank will keep raising rates as inflation in the euro zone hit an all-time high of 10.6% in October, which is far above the 2.0% target.
In spite of Lagarde’s comments there is speculation that ECB policymakers may slow down interest rate hiking with only a 50 basis point increase next month.
Retail sales in the U.K. increased 0.6% month-over-month in October of 2022, which compares to market forecasts of a 0.3% rise.
Japan’s overall consumer inflation increased 3.7% from a year earlier in October, exceeding the Bank of Japan’s 2.0% target for the seventh consecutive month. The pace of price rises accelerated from a 3.0% annual increase in September.
STOCK INDEX FUTURES
Stock index futures are higher due to upbeat corporate results, although gains were limited by a deteriorating outlook for economic growth and recent hawkish speeches from several Federal Reserve policymakers.
The 9:00 central time October existing home sales report is expected to be 4.360 million.
The 9:00 October leading indicators report is anticipated to show a 0.4% decline.
The fundamentals and technicals for stock index futures are improving.
INTEREST RATE MARKET FUTURES
The severely inverted yield curve suggests weaker U.S. economic growth lies ahead. Recently the spread between the 2-year and 10-year note yields was at its deepest inversion in over 40 years.
The technicals and fundamentals are looking more constructive for the interest rate market futures.
According to financial futures markets currently, there is an 81.0% probability that the Federal Open Market Committee will increase its fed funds rate by 50 basis points at the December 14 meeting and a 19.0% probability that the rate will be hiked by 75 basis points.
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