Written Commentary
STOCK INDEX FUTURES
After four days of higher prices, stock index futures are lower in response to weaker than expected corporate earnings reports, ongoing geopolitical risks and the hawkish Federal Reserve.
Jobless claims in the week ended January 29 were 238,000 when 250,000 were expected.
The 8:45 central time January composite final index is anticipated to be 50.8.
The 9:00 January Institute for Supply Management services index is predicted to be 60.0 and the 9:00 December factory orders report is anticipated to be down 0.2%.
The dominant short term influences are the hawkish Federal Reserve and geopolitical risks.
CURRENCY FUTURES
The U.S. dollar index is lower, and the euro currency is higher, reversing trends in the overnight trade.
As expected, the European Central Bank at its policy meeting today maintained key interest rate levels, despite record increases in inflation. The bank confirmed it will discontinue net asset purchases under the pandemic stimulus program at the end of March 2022.
Due to increased inflationary pressures, analysts now believe the European Central bank will have to raise borrowing costs later this year. Financial futures markets are now predicting a 30-basis point rate increase by December with the first 10-basis points hike by July.
Producer prices in the euro area jumped 26.2% from a year earlier in December of 2021, which is the most on record and above market expectations of a 26.1% increase.
The British pound extended gains for a fifth session in a row to an over two-week high, as investors reacted to the expected 25 basis point rate hike by the Bank of England to 50 basis points. There were four votes for a steeper 50 basis point hike.
Financial futures markets have priced in up to four Bank of England interest rate increases this year, which in the longer term will likely support the British pound.
INTEREST RATE MARKET FUTURES
Many market participants expect the Federal Open Market Committee will increase its fed funds rate five times this year with the first increase likely at the March 16 meeting.
Some analysts believe that if the rate of growth in the U.S. economy slows, it may be difficult for the Federal Reserve to maintain its ramped-up hawkish policy stance.
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