Written Commentary
CURRENCY FUTURES
The U.S. dollar is sharply lower after Fed Chair Powell announced yesterday that the Fed is moving to “average inflation targeting,” suggesting that the U.S. central bank will remain accommodative for longer.
Some of the bears on the greenback for a while have speculated that the Federal Reserve may loosen its approach to inflation and now, it has.
Longer term, the U.S. dollar is likely to trend lower.
The euro zone August consumer confidence index was negative 14.7, as predicted.
Canada’s second quarter gross domestic product contracted at an annualized rate of 38.7% when a contraction of 40.0% was expected.
STOCK INDEX FUTURES
S&P 500 and NASDAQ futures advanced to a record high today after yesterday’s speech from Federal Reserve Chairman Jerome Powell at the Kansas City Federal Reserve’s 44th Annual Economic Policy Symposium. Chairman Powell signaled looser monetary policy for longer.
Chairman Powell called for a “robust updating” of Federal Reserve policy. The central bank has formally agreed to a policy of “average inflation targeting,” which means it will allow inflation levels to run “moderately” above the Fed’s 2.0% goal “for some time” following periods when the rate of inflation has run below that objective.
July personal income increased 0.4% when a decline of 0.2% was expected.
The 8:45 central time August Chicago PMI is anticipated to be 51.8 and the 9:00 August consumer sentiment index is estimated to be 72.8.
U.S. stock index futures continue to have upside momentum.
INTEREST RATE MARKET FUTURES
Interest rate market futures at the short end of the curve are likely to be supported by ideas that major central banks, including the Federal Reserve, will keep short term interest rates low for an extended period.
However, futures at the long end of the curve, especially the 30-year Treasury bond futures may be undermined by the inflationary aspects of “average inflation targeting.”
The next Federal Open Market Committee meeting is scheduled for September 16. Financial futures markets are predicting there is a 90% probability that the FOMC will maintain its fed funds target rate at zero to 25 basis points.
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