Written Commentary
STOCK INDEX FUTURES
S&P 500 futures advanced to a six-month high yesterday.
However, prices declined in the overnight trade due to weaker than expected corporate earnings reports.
There was additional pressure on futures when the U.S. employment numbers were released.
Nonfarm payrolls increased 517,000 when up 185,000 was anticipated.
The unemployment rate was 3.4% when 3.6% was predicted.
Hourly average earnings increased 0.3% as estimated.
The 8:45 central time January PMI composite final is expected to be 46.6.
The 9:00 January Institute for Supply Management services index is predicted to be 50.4.
Stock index futures are likely to at least partially recover this afternoon.
CURRENCY FUTURES
The U.S. dollar index firmed when the U.S. employment numbers were released.
Interest rate differentials are neutral for the U.S. dollar index and breakouts for the greenback are likely to fail in both directions.
Producer price inflation in the euro area eased further to 24.6% year-on-year in December 2022, which is the lowest since November 2021, but coming in above market expectations of 22.5%.
Business activity in the euro zone returned to growth in January. In the last quarter of 2022 the euro zone gross domestic product expanded 0.1%, outperforming analysts’ expectations for a 0.1% drop.
INTEREST RATE MARKET FUTURES
Futures are lower due to the stronger than expected U.S. employment numbers.
On the inflation front, according to the United Nations food agency, world food prices fell in January for the tenth consecutive month, and are now down 18.0% from a record high hit last March. This was the lowest reading since September 2021.
My analysis suggests the Federal Open Market Committee will increase its fed funds rate by 25 basis points at its March meeting.
Futures are likely at least partially recover this afternoon.
The long term outlook for futures is higher.
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