US Dollar Underperforms

CURRENCY FUTURES

The U.S. dollar is lower today. In the last few days, there appears to be only a limited flight-to-quality flow of funds into the greenback.

Germany’s wholesale prices declined for the sixth consecutive period by 4.1% on a year-on-year basis in September 2023. This follows a 2.7% drop in August and was the largest decline since May 2020.

A new poll of economists indicated the European Central Bank will not lower interest rates until September 2024. A previous poll indicated borrowing costs would be lowered in March.

STOCK INDEX FUTURES

Recent strength in stock index futures was primarily due to prospects of a less hawkish Federal Reserve. However, gains are being limited by concerns about an escalation of the war in the Middle East.

The October Empire State manufacturing index was -4.6 when -5.0 was expected.

Traders are bracing for a big week of earnings reports.

The fundamental and technical factors are becoming more supportive.

INTEREST RATE MARKET FUTURES

Futures trended higher last week due to renewed flight to quality flows in light of the escalation of the war in the Middle East.

In addition, there was support on Friday when Federal Reserve Bank of Philadelphia President Patrick Harker said he believes the central bank is likely done with rate hikes due to an ongoing waning in price pressures. Patrick Harker will speak again today at  9:30 central time and also at  3:30.

Prices are lower today but are likely to at least partially recover.

Market participants will closely monitor comments from Federal Reserve officials this week, including an appearance by Federal Reserve Chair Powell before the Economic Club of New York on Thursday.

Recent dovish comments from Federal Reserve officials reduced expectations of another interest rate hike this year.

Financial futures markets are now predicting there is a 94% probability that the Federal Open Market Committee will keep its fed funds rate unchanged and only a 6% probability of a 25 basis point increase at its November 1 policy meeting.

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