Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher despite disappointing guidance from several technology companies. Overall though, earnings season has been reasonably strong so far with over 80.0% of companies that have reported to date beating analysts’ expectations, according to Refinitiv.
Investors are awaiting the Federal Reserve’s policy meeting on Wednesday for more signals on the pace of monetary tightening, with markets anticipating another rate hike to counter the highest inflation in decades.
The 8:45 central time April PMI manufacturing final index is expected to be 59.4.
The 9:00 April Institute for Supply Management manufacturing index is anticipated to be 58.0 and the 9:00 March construction activity report is predicted to show a 0.8% increase.
The dominant influences remain geopolitical tensions and the hawkish Federal Reserve.
CURRENCY FUTURES
The U.S. dollar index is higher and is near 20-year highs.
Interest rate differential expectations suggest higher prices are likely for the greenback.
The euro currency is lower on news that euro zone manufacturing growth weakened further.
The S&P global euro zone manufacturing purchasing managers index fell to a 15-month low of 55.5 in April from 56.5 in March.
Retail sales in Germany unexpectedly edged 0.1% lower month-over-month in March of 2022, compared to market forecasts of a 0.3% increase.
Lower prices are likely for the euro currency.
The British pound is lower even though the Bank of England will likely hike interest rates for a fourth straight meeting on Thursday, bringing borrowing costs to 1.0%, which is their highest level in 13 years.
The Swiss franc is trading near two-year lows after the Swiss National Bank said it does not plan to deviate from its ultra-loose monetary policy any time soon, as Chairman Jordan said current levels of inflation are temporary.
The Japanese yen is lower and is 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
The Federal Reserve’s next monetary policy-setting meeting will be held on Tuesday and Wednesday. The central bank will release its latest policy statement and hold a press conference with Fed Chair Jerome Powell Wednesday afternoon.
Currently there is a 99.1% probability of a 50 basis point increase and a 0.9% probability of a 75 basis point hike in the fed funds rate.
Economists see two half-point hikes followed by a series of quarter-point increases.
The Fed is also expected to formally announce that it will begin quantitative tightening, or rolling assets off of its $9.0 trillion balance sheet.
Lower prices are likely across the board for the interest rate market futures as most major central banks are anticipated to tighten credit policies this year.
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