Written Commentary
STOCK INDEX FUTURES
Stock index futures are mixed as investors awaited a batch of earnings reports from major financial firms.
Jobless claims in the week ended April 9 were 185,000 when 175,000 were expected.
Retail sales in March were up 0.5% month-over-month, which compares to the anticipated 0.6% increase.
The 9:00 central time April consumer sentiment index is estimated to be 58.8 and the 9:00 February business inventories report is predicted to show a 1.3% increase.
CURRENCY FUTURES
The U.S. dollar index advanced, underpinned by prospects of a more aggressive pace of Federal Reserve tightening.
The European Central Bank left interest rates unchanged as expected and said that any adjustments to interest rates will take place some time after the end of the Governing Council’s asset-purchase program and will be gradual.
Yesterday the Bank of Canada pulled the trigger on its biggest interest rate increase in over 20 years when it lifted its target for the overnight rate by half a percentage point from 0.50% to 1.00%. The BoC said further increases are necessary to keep long-term inflation expectations anchored closer to its 2.0% target.
The Japanese yen is higher today, after yesterday falling to its lowest level in nearly 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. The BoJ has also repeatedly intervened to keep benchmark bond yields around zero.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
INTEREST RATE MARKET FUTURES
Federal Reserve speakers today are Loretta Mester at 1:30 and Patrick Harker at 5:00.
Currently there is a 91.0% probability of a 50 basis point increase and a 9.0% probability of a 25 basis point hike in the fed funds rate at the Federal Open Market Committee’s ’s May 4 policy meeting.
Lower prices are likely 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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