Written Commentary
STOCK INDEX FUTURES
In response to yesterday’s higher than expected increase in the consumer price index. stock index futures continued to decline in the overnight trade. However, there has been some recovery today.
The 9:00 central time February consumer sentiment index is expected to be 67.5.
The dominant influence remains the hawkish Federal Reserve followed by tensions in Ukraine.
CURRENCY FUTURES
The U.S. dollar index is higher today, but overall it has underperformed the news in recent weeks.
The euro currency is lower despite a report that showed wholesale price inflation in Germany increased 16.2% year-on-year in January 2022, after a 16.1% gain a month earlier and a record 16.6% in November.
The British pound is higher in spite of news that the British economy expanded 1.0% the on quarter in the last three months of 2021, which is the same as in the previous period and slightly under forecasts of 1.1%.
The Japanese yen depreciated to a five-year low yesterday, falling under the January 4 low, before some recovery today.
A Bank of Japan board member reiterated on Wednesday that the BoJ will maintain its ultra-loose monetary policy to support the economic recovery and achieve the 2.0% inflation target. His statements were in line with previous comments from other policymakers, underscoring one of the most dovish policy positions among major central banks.
Interest rate differential expectations suggest the long term trend for the Japanese yen is lower.
INTEREST RATE MARKET FUTURES
After yesterday’s larger than predicted increase in the consumer price index, many market participants expect the Federal Open Market Committee will increase its fed funds rate seven times this year with the first hike likely at the March 16 meeting. Financial futures market are now predicting the FOMC will hike its fed funds rate by 50 basis points at the March 16 policy meeting.
Yesterday, Federal Reserve Bank of St. Louis President James Bullard said he supports raising interest rates by a full percentage point by the beginning of July, including the first 50 basis point hike since 2000.
Some analysts believe that if the rate of growth in the U.S. economy slows, and also globally, it may be difficult for the Federal Reserve and other major central banks to maintain ramped-up hawkish policies.
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