Written Commentary
STOCK INDEX FUTURES
Corporate news took some of the focus off developments in Ukraine. Peace talks are expected to resume today.
The 9:00 central time February factory orders report is expected to be down 0.6%.
Futures remain well above downtrend lines.
The main fundamental influences remain geopolitical tensions and the hawkish Federal Reserve.
CURRENCY FUTURES
The euro currency is lower on news that the German trade surplus declined to €11.4 billion in February of 2022 from €17.9 billion a year earlier, as imports jumped 24.5% to €111.9 billion, and exports rose at a softer 14.4% pace to €123.3 billion.
One of Japan’s former chief currency officials said current Bank of Japan Governor Haruhiko Kuroda won’t change his ultra-low interest rate policy in the coming quarters, even though he will come under political pressure to do so because of the weak yen.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
INTEREST RATE MARKET FUTURES
Traders are keeping a close watch on the yield curve, which measures the spread between short-term and long-term interest rates and is often seen as an indicator of sentiment about the prospects for economic growth.
The Treasury yield curve is flashing more warnings that economic growth will slow as the Federal Reserve raises rates to tame inflation. The two-year U.S. yield has exceeded the 30-year yield for the first time since 2007, joining inversions on other parts of the yield curve.
The Fed has little choice but to increase the pace of fed funds rate hikes given headline inflation rates are the highest since the 1970s and are predicted to go higher.
Currently there is a 73.3% probability of a 50 basis point increase and a 26.7% probability of a 25 basis point hike in the fed funds rate at the 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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