Written Commentary
CURRENCY FUTURES
The September U.S. dollar index futures fell to a new low for the move and are at its lowest level since June 2018.
Much of the recent weakness in the greenback can be linked to the more accommodative Federal Reserve policies. The Fed’s now formalized “average inflation targeting,” suggests the U.S. central bank will remain accommodative for longer.
The U.S. dollar will likely trend lower on the Fed’s new strategy.
The currency of the euro zone advanced to its highest level since June 2018, as
manufacturing activity in Europe showed some signs of improvement. Germany recorded a stronger recovery, with the purchasing managers index advancing to the highest level in almost two years.
The British pound posted a fresh eight-month peak after a report showed U.K. manufacturing production increased at the fastest pace since May 2014. The pound is higher despite the apparently stalled progress in trade talks between the E.U. and the U.K.
The Reserve Bank of Australia kept its official cash rate at a record low 0.25%. Reserve Bank of Australia Governor Philip Lowe said he still expects interest rates to remain ultra-low for some time. The RBA was mostly upbeat on the economic recovery, saying the downturn is not as severe as feared.
STOCK INDEX FUTURES
U.S. stock futures edged higher ahead of the release of manufacturing data.
The 8:45 central time August PMI manufacturing index is expected to be 53.6.
There are two 9:00 reports. The August Institute for Supply Management index is anticipated to be 54.5 and the July construction spending report is estimated to show a 1.0% increase.
U.S. stock index futures continue to have upside momentum.
INTEREST RATE MARKET FUTURES
Lael Brainard of the Federal Reserve will speak at 12:00.
Interest rate market futures at the short end of the curve are likely to be supported by ideas that major central banks, including the Federal Reserve, will keep short term interest rates low for an extended period.
However, futures at the long end of the curve, especially the 30-year Treasury bond futures may be undermined by the inflationary aspects of the Federal Reserve’s “average inflation targeting” policy.
The next Federal Open Market Committee meeting is scheduled for September 16. Financial futures markets are predicting there is a 90% probability that the FOMC will maintain its fed funds target rate at zero to 25 basis points.
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