Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
Weak NY Fed Manufacturing Index Pressure
- January 18, 2022
- Alan Bush
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STOCK INDEX FUTURES
Stock index futures are lower following recent hawkish comments from several Federal Reserve officials. In addition, there were some disappointing corporate earnings reports today.
The New York Empire State manufacturing index plunged to -0.7 in January of 2022 from 31.9 in December, well below market forecasts of 26. This reading points to the first contraction in New York business activity since the second quarter of 2020 and ends 18 straight months of expansion.
The 9:00 central time January housing market index is anticipated to be 84.
The longer-term fundamentals remain supportive despite the more hawkish Federal Reserve.
CURRENCY FUTURES
The euro currency is lower despite news that economic expectations in Germany rebounded at the beginning of the year. The ZEW economic research institute said the index of economic expectations increased to 51.7 in January from 29.9 in December, which beat the 32.5 consensus forecast from economists.
The British pound is lower in spite of news that the U.K. unemployment rate fell to 4.1% in the three months to November 2021, which is the lowest level since the three months to June 2020 and below market expectations of 4.2%.
In the longer term, the hawkish Bank of England will likely support the British pound. Financial futures markets have priced in up to four Bank of England interest rate hikes in 2022.
Housing starts in Canada declined 22.0% in December from November.
The Bank of Japan held its policy meeting today and left its key short-term interest rate unchanged at -0.1% and that for 10-year bond yield around 0% by an 8-1 vote, as widely expected.
An accommodative Bank of Japan will likely result in long-term pressure on the yen.
INTEREST RATE MARKET FUTURES
Futures continue to decline as the Federal Open Market Committee remains steadfast in its intentions to hike its fed funds rate three or four times this year.
The next FOMC meeting is scheduled for January 26. Most analyst are predicting the FOMC will keep its fed funds rate unchanged at 0% to .25% at the meeting.
Financial futures markets are predicting the FOMC will hike its fed funds rate at the March 26 policy meeting by 25 basis points.
Some analysts believe that if the rate of growth in the U.S. economy slows, it may be difficult for the Federal Reserve to maintain its recently ramped-up hawkish policy stance.
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