Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures are higher and are close to record highs.
The 8:45 central time November PMI manufacturing final index is expected to be 56.7.
The 9:00 November Institute for Supply Management manufacturing index is anticipated to be 57.7 and the 9:00 October construction spending report is predicted to be up 0.8%.
At 9:00 Federal Reserve Chairman Jerome Powell will testify on the CARES Act before the Senate. Several of those programs will end December 31. In prepared remarks, Powell stressed the importance of the lending programs through the act. Treasury Secretary Steven Mnuchin is also expected to testify.
CURRENCY FUTURES
The U.S. dollar is weaker and yesterday hit its lowest level since May 2018.
Longer term, the U.S. dollar is likely to drift lower due to expectations for an extended period of low interest rates and concerns over rising U.S. levels of debt.
The euro currency is higher and yesterday reached its highest level since September 2. Today’s gains are linked to news that final Markit PMI data showed euro zone factory activity grew faster than originally thought in November and business confidence improved to over a 2-1/2-year high.
German jobless claims fell, beating expectations. Jobless claims fell 39,000 in November after falling by a revised 38,000 in October. Economists had forecast an increase of 10,000. Also, the adjusted unemployment rate fell to 6.1% from 6.2% in October, which is below the 6.3% forecast by economists.
The British pound advanced to a three-month high before paring some of the gains. The pound was supported by better-than-expected manufacturing PMI data, along with hopes of a post-Brexit trade deal.
The Reserve Bank of Australia left official interest rates unchanged at record lows at its policy meeting today, while signaling rising confidence for the future.
The RBA left its official cash rate at 0.10% and maintained its three-year government bond yield target at the same level. The central bank also recommitted to its $100 billion Australian dollar quantitative easing program, which it announced in November.
The real gross domestic product in Canada grew by 8.9% on a quarterly basis in the third quarter after a contraction of 11.3% in the second quarter. On a yearly basis, the economy expanded by 40.5% in the third quarter but missed the market expectation for growth of 47.6%.
INTEREST RATE FUTURES
Futures are steady at the front end of the yield curve and are sharply lower at the long end, especially the 30-year Treasury bond futures.
In addition to Fed Chair Powell, other Federal Reserve speakers today are Lael Brainard at 10:00, Mary Daly at 12:15 and Charles Evans at 2:00.
Financial futures markets are predicting there is almost a 100% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at zero to 25 basis points at the December 16 policy meeting.
In the months ahead the yield curve is likely to steepen, which should put pressure on futures at the long end of the curve, especially the 30-year Treasury bond futures, while futures at the short end of the curve are likely to hold steady.
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