Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
CURRENCY FUTURES
The U.S. dollar index advanced as interest rate differentials are becoming more supportive to the greenback, and it looks like the U.S. dollar may have bottomed, especially after yesterday’s gap higher on the daily chart.
The European Central Bank is likely to cut interest rates in the summer, according to President Christine Lagarde.
The British pound firmed on news that the annual inflation rate in the U.K. unexpectedly increased to 4.0% in December 2023 from a nearly two-year low of 3.9% in November, and above forecasts of 3.8%. This is the first increase in inflation rate in ten months.
Traders pared back the timing of Bank of England interest rate cuts after this inflation report. Traders now see an almost 60% chance the BoE will start cutting interest rates in May, which is down from just over 80% late yesterday.
STOCK INDEX FUTURES
Stock index futures are lower as various central banks pushed back against expectations of aggressive interest rate cuts this year.
Retail sales in December increased 0.6% when up 0.4% was expected.
Import prices in December were unchanged when a decline of 0.6% was predicted and export prices fell 0.9% when down 0.6% was estimated.
Industrial production in December increased 0.1% when a decrease of 0.1% was forecast, and capacity utilization in December was 78.6% when 78.7% was expected.
The 9:00 central time January housing market index is anticipated to be 38.
At 1:00 the Federal Reserve will release its Beige Book on the economy.
The fundamentals and technicals remain supportive to stock index futures longer term despite recent talk of a potentially less dovish Federal Reserve this year.
INTEREST RATE MARKET FUTURES
Futures are lower on the belief that the Federal Reserve will be slow to lower its fed funds rate this year.
The U.S. Treasury will auction 20-year bonds today.
Federal Reserve speakers today are Michael Barr at 8:00, Michelle Bowman at 8:00 and John Williams at 2:00 this afternoon.
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 and 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 fell from near 80% on Friday to 62% today.
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