Written Commentary
Employment Data Disappoints
May 3, 2024
CURRENCY FUTURES
The U.S. dollar index is a little lower, and remains in a six-day symmetrical triangle pattern.
Since the second week in March the greenback has been supported by increasingly more favorable interest rate differentials.
The Federal Reserve is likely to remain restrictive for longer, while other major central banks will probably become accommodative sooner.
HCOB’s preliminary composite euro zone Purchasing Managers’ Index improved to 51.4 this month from 50.3 in March, which is well ahead of expectations of 50.7.
The S&P Global U.K. Composite Purchasing Managers’ Index for the services and manufacturing sectors increased to an 11-month high of 54.0 in April from March’s 52.8, and above forecasts.
In the longer term, lower prices are likely for the euro currency and the British pound.
The au Jibun Bank Japan Manufacturing PMI increased to 49.9 in April 2024 from 48.2 in March, which was above market forecasts of 48.
Japan’s finance minister said the groundwork has been laid to take appropriate foreign exchange action, and he would not deny that last week’s discussions in Washington laid groundwork for Japan to take appropriate foreign exchange intervention.
The Bank of Japan will hold its monetary policy meeting on Friday.
STOCK INDEX FUTURES
Stock index futures are higher due to easing tensions in the Middle East.
The 8:45 central time April PMI manufacturing index is expected to be 51.9.
The 9:00 March new home sales report is anticipated to be 670,000.
The Richmond Federal Reserve manufacturing index will be released at 9:00. The report in March came in at -11.
The fundamentals in the short term are offsetting.
INTEREST RATE MARKET FUTURES
Futures are lower across the board as safe-haven assets continue to be liquidated in light of easing tensions in the Middle East.
The Treasury will auction two-year notes today
There are no speakers from the Federal Reserve today with the Federal Open Market Committee meeting’s blackout period in effect, which precedes a FOMC meeting.
Financial futures markets are predicting no change in the fed funds rate at the Federal Open Market Committee’s May, June and July meetings. However, there is a 64% probability of a rate reduction at the September 18 meeting. Yesterday the probability was 66%.
I would not be surprised to see the probability of a fed funds rate cut at the September meeting diminishing as we get closer to that meeting.
The bearish influence of a Federal Reserve that is slow to pivot to accommodation may be offset from time to time by the possibility of a flight to quality flow of funds if geopolitical concerns intensify.
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