Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures largely started 2022 on a strong footing. However, futures are mixed today as investors await minutes from the Federal Reserve’s recent policy meeting.
Mortgage applications fell 5.6% in the week ended December 31, according to data from the Mortgage Bankers Association. Applications to purchase a home dropped 10.2% and those to refinance a home loan declined 2.5%.
The ADP employment report for December showed an increase of 807,000 workers when a gain of 414,000 were expected.
The 8:45 central time December PMI composite is anticipated to be 56.9.
Higher prices are likely for stock index futures in the first part of 2022.
CURRENCY FUTURES
The U.S. dollar index and the euro currency remain in broad sideways patterns, and with interest rate differential expectations offering no clear advantage to either currency, the sideways trade will likely continue for the U.S. dollar and the euro currency over the near term.
Economic growth in the euro zone eased to a nine-month low in December. The euro zone composite purchasing managers index fell to 53.3 in December from 55.4 in November.
The euro zone services PMI fell to 53.1 in December from 55.9 in November, declining to its lowest level since April.
A hawkish Bank of England will likely continue to support the British pound. The Bank of England surprised traders in December by hiking interest rates from record low levels. In addition, markets have priced in up to four Bank of England interest rate hikes in 2022.
The Japanese yen is hovering near five-year lows. An accommodative Bank of Japan will likely result in continuing pressure on the yen in the first part of this year.
INTEREST RATE MARKET FUTURES
There was limited pressure on futures when the stronger than estimated ADP report was released.
The minutes from the recent FOMC meeting will be released at 1:00. Fed officials said in that meeting they would speed up the pace at which stimulus measures are withdrawn, and issued projections for three interest rate hikes in 2022.
On December 30, futures at the short end of the curve broke out above a downtrend line that started in late November.
The fundamentals for the interest rate futures at the short end of the curve are now mostly aligned on the bullish side.
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