Index Futures Advance on Bullish PPI Report

STOCK INDEX FUTURES

Stock index futures were higher in the overnight trade, and there were continued gains when the bullish December producer price index report was released.

The December producer price index increased 0.2% when up 0.3% was expected, and the producer price index excluding food and energy was unchanged when up 0.2% was anticipated.

The softer than forecast producer price index report gives latitude to the Federal Open Market Committee to be more accommodative.

The National Federation of Independent Business Small Business Optimism Index in the U.S. improved to 105.1 in December 2024, which is the highest since October 2018, and beat predictions of 100.8.

Traders are gearing up for earnings season with major banks set to report this week.

CURRENCY FUTURES

The U.S. dollar index was lower in the overnight trade and came under additional pressure when the producer price index report was released.

The greenback is likely to at least partially recover from this morning’s selling.

The long term fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.

The British pound is lower, marking its sixth straight day of declines, and is at the lowest level since November 2023, as concerns over the U.K.’s fiscal health weighed on market sentiment.

The long term fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.

Japan’s 10-year government bond yield surged to approximately 1.25%, reaching its highest level since April 2011, due to growing expectations that the Bank of Japan will continue increasing interest rates.

INTEREST RATE MARKET FUTURES

Futures quickly advanced when the producer price index report was released. However, futures are not performing as well as could be expected based on this bullish producer price index report, which is a sign of weakness. Lower prices are likely for futures from the morning higher prices.

Federal Reserve speakers today are Jeffrey Schmid at 9:00 and John Williams at 2:05.

There is a 97% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 3% chance of a 25 basis point reduction.

The timeline for a 25 basis point interest rate cut from the FOMC has been pushed out to the June 18, 2025 policy meeting.

Financial futures markets are now pricing in only 29 basis points of easing for this year.

The U.S. economy is likely to perform well, which may cause the FOMC to be slower to add accommodation in 2025 than the consensus view.

 

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