Fed Less Accommodative in 2024?

STOCK INDEX FUTURES

Stock index futures are lower to kick off 2024 after a strong 2023, which saw double-digit gains for the three major averages.

Much of the selling today is being linked to the belief that the Federal Reserve may not be quite as aggressively lowering its fed funds rate this year compared to what was previously thought.

Federal Reserve Bank Chicago

The 8:45 central time December final manufacturing PMI is expected to be 48.2.

The 9:00 November construction spending report is anticipated to show a 0.6% increase.

The fundamentals and technicals remain supportive to stock index futures despite a potentially less dovish Federal Reserve in 2024.

CURRENCY FUTURES

The U.S. dollar index is higher on ideas that the Federal Reserve may not be as accommodative this year as many analysts had predicted. It was just last week that the greenback fell to a five-month low.

However, it still appears that the Federal Reserve will start cutting rates earlier than some of the other major central banks.

Lower prices are likely for the U.S. dollar longer term.

There was some support for the euro currency on news that HCOB’s final euro zone manufacturing Purchasing Managers’ Index improved to 44.4 in December from November’s 44.2 but remained well below the 50 mark separating growth in activity from contraction. A preliminary estimate was for unchanged from November.

Bank lending to households in the euro zone increased by 0.5% year-on-year, which was the slowest pace since May 2015.

INTEREST RATE MARKET FUTURES

Futures are lower as Treasury yields on some issues increased more than 7 basis points. The yield on the U.S. 10-year Treasury note increased to above 3.96% on the first trading day of 2024, moving further away from the five-month lows of 3.78% touched last week.

Traders continue to believe the Fed will cut interest rates this year but not at the January meeting.

Financial futures markets are predicting there is a 13% probability that the Federal Open Market Committee will reduce its fed funds rate by 25 points at its January 31, 2024  policy meeting and an 87% probability of no change.

However, financial futures markets are currently suggesting the Federal Open Market Committee will reduce its fed funds rate by 25 basis points at its March 20, 2024 policy meeting.

Interested in more futures markets?  Explore our Market Dashboards here.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

Latest News & Market Commentary

Explore the latest edition of The Ghost in the Machine

Explore Now