Written Commentary
Treasury Futures Under Pressure
April 24, 2024
STOCK INDEX FUTURES
International stock markets tumbled on Friday due to renewed concerns about the coronavirus.
Follow-through weakness is likely today. However, a bottom will probably take place next week.
The long-term fundamentals remain bullish on balance for stock index futures.
CURRENCY FUTURES
On Wednesday the U.S. dollar index advanced to its highest level since July 2020. Much of the strength is linked to bullish interest rate differential expectations. However, today the greenback is lower despite the normally bullish flight to quality influence.
The euro currency remains near a 16-month low, as European Central Bank President Lagarde continues to push back against expectations of policy tightening in the euro zone. Recently the ECB chief said it does not make sense to tighten policy, as inflation pressures in the euro zone are expected to fade.
Import prices in Germany surged 21.7% year-on-year in October 2021, which is the largest annual increase since January 1980 and is well above the market consensus of a 19.6% advance.
The British pound fell to an 11-month low due to doubts whether the Bank of England will raise interest rates at its December 16 policy meeting. Governor Andrew Bailey last Sunday made comments indicating he is taking a more careful view on policy than in his remarks earlier about the likelihood that policy will tighten soon.
Switzerland’s gross domestic product grew 1.7% on the quarter in the three months to September 2021, following a 1.8% expansion in the previous period and below market expectations of 2.0%.
The Japanese yen advanced, as investors sought safe haven assets.
INTEREST RATE MARKET FUTURES
As investors reached for safe-haven assets, government bond yields around the world tumbled on Friday.
The new variant has the potential to impact monetary policy, and traders are adjusting their expectations accordingly.
Traders scrambled to push back the timing of the Fed’s first 25-basis point rate increase in its fed funds rate next year.
In addition, the Fed could rethink the possibility of increasing the rate at which it tapers its quantitative easing program. The Fed began tapering its quantitative easing plan this month, and has indicated that it could speed up the pace of its taper based on economic conditions, including inflation and the labor market.
Follow-through gains are likely for futures today.
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