Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures are mixed today after four consecutive days of gains.
The October employment numbers were mostly stronger than expected.
October nonfarm payrolls increased 638,000 when a gain of 575,000 was expected and the unemployment rate improved to 6.9%, which compares to the anticipated 7.7%.
Private payrolls increased 906,000 when up 650,000 was predicted and manufacturing payrolls advanced 38,000 when an increase of 48,000 was estimated.
The labor participation rate improved to 61.7% when 61.5% was estimated.
The 2:00 central time September consumer credit report is predicted to show a $7.9 billion increase.
Major central banks around the world are under pressure to add more accommodation.
Once the political uncertainties in the U.S. are reduced, it will be the globally low interest rate environment that will once again dominate.
CURRENCY FUTURES
The U.S. dollar saw follow-through weakness after the Federal Reserve’s announcement yesterday that it would keep short-term borrowing rates steady. The U.S. dollar is lower today for the fourth day and fell to a 9-week low.
The greenback has been weakening since May amid rising debt levels coupled with expectations for an extended period of low interest rates.
The euro currency is higher in spite of the ongoing belief that the European Central Bank will deliver more stimulus when it meets in December.
The safe-haven Swiss franc advanced to a six-year high.
The Reserve Bank of Australia said it is not contemplating any further reductions in interest rates and believes a move to negative interest rates would contribute little to speeding the economy’s recovery.
The Reserve Bank of Australia in its November Statement on Monetary Policy today said, “The board considers that there is little to be gained from short-term interest rates moving into negative territory and continues to view a negative policy rate as extraordinarily unlikely.”
The RBA lowered its official cash rate to a record low 0.10% from 0.25% on Tuesday and announced a $100 billion Australian dollar quantitative easing program.
INTEREST RATE MARKET FUTURES
The Federal Open Market Committee on Thursday left overnight interest rates unchanged in keeping with its commitment to keep them there until it sees evidence of a tighter labor market and inflation has advanced above its 2.0% target rate. It also said it would continue to purchase Treasuries and mortgage-backed securities.
In September, Federal Reserve officials pledged to support the recovery by setting a higher bar to increase interest rates and by signaling it expected to keep rates near zero for at least three more years.
The yield curve is likely to steepen, which should put pressure on the futures at the long end of the curve, while futures at the short end of the curve are likely to hold steady.
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