Written Commentary
STOCK INDEX FUTURES
Personal income in December increased 0.3% when a gain of 0.5% was expected.
The fourth quarter employment cost index was up 1.0% when an increase of 1.2% was anticipated.
The 9:00 central time January consumer confidence index is predicted to be 68.6.
Stock index futures in the short term will have a difficult time considering the ongoing geopolitical risks and the hawkish Federal Reserve.
CURRENCY FUTURES
The U.S. dollar index was higher but is lower now after this morning’s weaker than estimated U.S. economic reports were released.
Now is a good time to take profits on long U.S. dollar positions now that the FOMC meeting is out of the way.
The euro currency depreciated to its weakest level since June 2020 after an economic sentiment indicator in the euro area fell to 112.7 in January of 2022 from a downwardly revised 113.8 in December and well under market forecasts of 114.5. This is the lowest reading in nine months.
Germany’s economy contracted in the fourth quarter. Gross domestic product fell by 0.7% from the previous quarter, which was larger than economists’ expectations of a 0.5% drop.
Financial futures markets have priced in up to four Bank of England interest rate hikes this year, which in the longer term, will likely support the British pound.
The Japanese yen is lower and is headed for its worst weekly decline since October.
Governor Haruhiko Kuroda said the Bank of Japan won’t be switching its bond yield target until inflation increases high enough to warrant exit talks. Kuroda said, “It’s too early and inappropriate to raise interest rates or steepen the yield curve by changing the yield curve control program now.”
This is the second time in two weeks that Kuroda sent a clear message trying to end speculation over a shift in the BOJ’s monetary easing policy.
An accommodative Bank of Japan will likely result in long-term pressure on the yen.
INTEREST RATE MARKET FUTURES
Many market participants now expect either four or five fed funds rate hikes in 2022 compared to three to four that were anticipated before the FOMC meeting on Wednesday.
Some analysts believe that if the rate of growth in the U.S. economy slows, and also the global economy, it may be difficult for the Federal Reserve to maintain its ramped-up hawkish policy stance.
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