February 8, 2010
STOCK INDEX FUTURES
There was some support for global equity prices after the Group of Seven finance ministers promised to press with their economic stimulus plans, while increasing their attention on the budget deficits issue. The Canadian finance minister said "we need to continue to deliver the stimulus to which we are mutually agreed."
There are no major economic reports scheduled for today.
Our analysis is telling us that a strengthening economy will be able to dominate over all other influences, including the political ones.
As opposed to what we have seen over the last two weeks, today we are starting to see futures beginning to ignore bearish news. This could be a sign that the recent correction is nearing an end.
CURRENCIES
The euro is higher and the U.S. dollar is lower, even though there appears to have been very little progress in attempts to ease the euro zone budget worries. The feeling remains that the resolution of the budget situation surrounding Greece, Spain and Portugal will take more time.
There was limited strength in the euro when European Central Bank President Trichet said the ECB is confident that Greece will cut its deficit below the limit of 3% of gross domestic product in 2012 from the current level of 12.7%.
The euro was able to gain even though European investor confidence dropped for the first time in seven months in February and even though the Greek civil servants union ADEDY said it may join a February 24th strike being planned by the largest private sector union in Greece, the GSEE. Last week the GSEE said they are planning to strike in response to Prime Minister Papandreou's plan to raise taxes and increase the retirement age.
The Australian dollar and the Canadian dollar firmed due to rising commodity prices.
INTEREST RATES
There are no Federal Reserve speakers scheduled for today.
Treasuries are lower even though Treasury Secretary Geithner said the U.S. is in no danger of losing its Aaa debt rating.
There is now only an 18% probability that the Federal Open Market Committee will increase their fed funds target by 25 basis points to 50 basis points at or before their August 10th meeting and a 46% chance that they will increase the rate at their September 10th meeting, according to the financial futures markets.
Prospects of tighter credit from the Federal Reserve continue to get pushed out into the future. No change in policy is expected at the next Federal Open Market Committee meeting, which will be held on March 16th.
We believe that the next tightening of credit from the Federal Open Market Committee will not take place until after the mid-term elections or even not until 2011.
The Treasury will auction $40 billion in three year notes tomorrow, $25 billion in ten year notes on Wednesday and $16 billion in thirty bonds on Thursday.
According to a recent survey, the Treasury is expected to sell $2.43 trillion of government securities in 2010, which would be a record and also would be a 16% increase from 2009.
We believe that we are in the early stages of a new bear market, especially for the longer dated issues.
Questions or comments about this article? I can be reached at 312.242.7911 or via email at alan.bush@archerfinancials.com. Additional research can be found at www.archerfinancials.com/research.aspx.
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