Written Commentary
CURRENCY FUTURES
The U.S. dollar index advanced to its highest level since August 16 due to favorable interest rate differentials.
European Central Bank policymaker Francois Villeroy de Galhau indicated the European Central Bank is “very likely” to cut interest rates next week due to weak economic growth. The next ECB policy meeting is scheduled for October 17 and a 25 basis point reduction is expected.
German exports increased 1.3% in August, while imports declined 3.4%. A 5.8% drop in factory orders and lower private sector PMI’s suggest an upcoming contraction in Germany’s economy.
The British pound declined to the lowest level in nearly four weeks on expectations of more aggressive interest rate cuts from the Bank of England in November.
The Japanese yen stabilized around 148 per U.S. dollar on Wednesday. December Japanese yen futures declined to an eight-week low earlier this week, as traders continue to assess the outlook for Bank of Japan monetary policy.
INTEREST RATE MARKET FUTURES
The U.S. Treasury will auction 10-year notes today.
Federal Reserve speakers today are Raphael Bostic at 7:00, Lorie Logan at 8:15, Austan Goolsbee at 9:30, Thomas Barkin at 11:15, Philip Jefferson at 11:30, Susan Collins at 4:30 and Mary Daly at 5:00.
It is widely expected that the Federal Open Market Committee will reduce its key interest rate again at its November meeting. However, the Federal Reserve may less aggressively lower its fed funds rate.
Currently there is an 87% probability that the FOMC will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 13% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.
Futures are higher today at the short end of the yield curve and are lower at the long end of the yield curve.
Since it is widely anticipated that the Federal Reserve will continue to ease monetary conditions well into 2025.
Futures at the front end of the yield curve are likely to continue to gain on futures at the long end of the yield curve.
STOCK INDEX FUTURES
Stock index futures are mixed after yesterday’s strong gains.
The minutes from the September 18 Federal Open Market Committee policy meeting will be released at 1:00 central time.
In addition, traders are looking ahead to this week’s inflation reports. The September consumer price index report will be released on Thursday and is anticipated to show a 0.1% increase, and the September producer price index report will be released on Friday and is estimated to show a 0.2% advance.
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