Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher for a second day.
Automated Data Processing, Inc. reported private businesses in the U.S. hired 247,000 workers in April, which is the least since April of 2020 and well under forecasts of 395,000.
The 8:45 central time April PMI composite final index is expected to be 54.7.
The 9:00 April Institute for Supply Management services index is anticipated to be 58.9.
The Federal Open Market Committee will conclude its two-day policy meeting today. A statement will be released at 1:00 P.M. central time and Federal Reserve Chairman Jerome Powell will hold a press conference at 1:30.
It is widely predicted that the FOMC will hike its fed funds rate by 50 basis points, which would be the second consecutive rate hike and the biggest increase in borrowing costs since 2000.
The Fed is also expected to formally announce that it will begin quantitative tightening by rolling assets off of its $9.0 trillion balance sheet.
CURRENCY FUTURES
The U.S. dollar index is lower but remains near 20-year highs.
Interest rate differential expectations suggest higher prices are likely for the greenback longer term.
The euro currency is higher on news that the euro zone composite PMI increased to 55.8 in April, which is up from 54.9 in March.
In addition, retail sales in the euro area declined 0.4% month-to-month in March, which is more than market expectations of a 0.1% decline.
Lower prices are likely for the euro currency longer term.
The Bank of England will likely hike interest rates for a fourth straight meeting tomorrow, bringing borrowing costs to 1.0%, which would be the highest level in 13 years.
The Japanese yen is higher but remains near its lowest level in 20 years. Recent pressure on the yen is linked to the Bank of Japan’s firm commitment to maintain ultra-easy monetary policies, which contrast sharply with other major central banks that are hiking interest rates.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
INTEREST RATE MARKET FUTURES
Futures could not rally when the bullish Automated Data Processing, Inc. employment change report was released, which is a sign of weakness.
Currently there is a 97.9% probability of a 50 basis point increase and a 2.1% probability of a 75 basis point hike in the fed funds rate at today’s Federal Open Market Committee policy meeting.
Longer term, lower prices are likely across the board for the interest rate futures market as most major central banks are anticipated to tighten credit policies this year.
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