Written Commentary
STOCK INDEX FUTURES
Stock index futures are higher as traders focused on the bullish smaller than expected increase in the March core consumer price index.
The National Federation of Independent Business small business optimism index declined for a third straight month to 93.2 in March, which compares to the expectations of 95.0. This is the lowest since April of 2020. The percentage of owners expecting improved business conditions over the next six months decreased to -49.0%, which is the lowest level on record.
The March consumer price index increased 1.2% when up 1.1% was anticipated and the consumer price index, excluding food and energy, increased 0.3% when a gain of 0.5% was estimated.
The annual inflation rate in the U.S. accelerated to 8.5% in March, which is the highest since December of 1981 from 7.9% in February. This compares with market forecasts of 8.4%.
Futures remain well above downtrend lines, but countering this are geopolitical tensions and the hawkish Federal Reserve.
CURRENCY FUTURES
The U.S. dollar index advanced to a new two-year high, underpinned by recent hawkish comments from Federal Reserve officials and flight to quality buying. However, the greenback is lower now due to the smaller than predicted increase in the March core consumer price index.
The ZEW Indicator of Economic Sentiment for Germany decreased by 1.7 points to -41 in April, which is the lowest level since March 2020 but is above market expectations of -48.
Some analysts believe the risk of recession is currently greater in the euro zone than in the U.S.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
INTEREST RATE MARKET FUTURES
Futures are higher today in response to the excluding food and energy portion of the March consumer price index report, after yesterday the 30-year Treasury bond futures fell to the lowest level since March 2019.
The Treasury will auction 10-year notes today.
Thomas Barkin of the Federal Reserve will speak at 4:30 this afternoon.
Currently there is an 85.4% probability of a 50 basis point increase and a 14.6% probability of a 25 basis point hike in the fed funds rate at the May 4 Federal Open Market Committee meeting.
Lower prices are likely longer term across the board for the interest rate futures market as most major central banks are anticipated to tighten credit policies this year.
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