March 11, 2010
STOCK INDEX FUTURES
Global equity markets are mixed to lower. China reported that their inflation level hit a 16 month high and new loans were more than anticipated. This prompted fears that China could withdraw some of their economic stimulus. There was some additional pressure when the mildly bearish U.S. jobless claims report was released.
In the week ended March 6th jobless claims were down 6,000 to 462,000, which compares to an estimate of 460,000 and in the week ended February 27th continuing claims were 4.56 million, when 4.5 million were anticipated.
Futures have recently shown a tendency to only temporarily come under pressure on bearish news, before a move to the upside. I am anticipating that this will be the case again today. Expect a move back to higher on the day for all of the major stock index futures.
Our research continues to tell us that this bull market will continue through 2010.
CURRENCIES
The U.S. dollar received only temporary support on ideas that China may take additional steps to slow the rapid growth in their economy.
In addition, there were only limited and temporary gains in the greenback when the smaller that anticipated U.S. January trade deficit was reported .The January U.S. trade deficit was $37.29 billion, which compares to an estimate of a $41 billion deficit.
The Swiss franc fell against the euro after the Swiss National Bank threatened intervention. There was credibility to their words, since they did enter the foreign exchange markets several times late last year.
The British pound gained after the quarterly Bank of England survey said consumers' inflation expectations advanced to their highest levels since November 2008. A higher inflation level, at least for the industrialized countries, is thought to be a sign of a pickup in economic activity.
In the long term, the Canadian dollar is likely to trade higher due to favorable interest rate differential expectations, along with prospects of higher commodity prices.
The Australian dollar was supported by the feeling that the Australian economy will continue to grow at above analysts' expectations.
In the longer term, the Australian currency is likely to be the strongest currency this year, followed by the Canadian dollar.
INTEREST RATES
The large amount of Treasury offerings this week has taken its toll on the market, especially for the longer dated Treasury issues.
The auctions of three and ten year Treasury notes earlier this week were met with relatively good demand. The Treasury will auction $13 billion in thirty year bonds today.
At 10:30 Central Time Baxter of the New York Federal Reserve will speak in Washington and at 3:30 Dudley of the Fed will speak to London economists.
The 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 November 3 meeting has increased to 95%, according to the financial futures markets. However, we believe that the U.S. central bank will not raise interest rates until next year.
We also believe that we are in the early stages of a new bear market for Treasury futures and the thirty year Treasury bond is likely to be the weakest performer.
If you would like more information about this article, please contact us at 1.877.690.7303 or send an email to alan.bush@archerfinancials.com. Additional research can be found at www.archerfinancials.com/research.aspx.
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