STOCK INDEX FUTURES
Futures were lower in the overnight trade on the continuing fears that upcoming economic reports will be weaker than the analysts' estimates.
The S&P/CaseShiller June, 20 city home price index was up 1%, which compares to an estimate of a 3.5% advance.
At 8:45 Central Time, the Institute of Supply Management will release their August Chicago purchasing manager index. The median estimate is 57.
The 9:00 August consumer confidence index is anticipated to be 50.7.
At 1:00, the Federal Open Market Committee will release the minutes from their August 10 meeting.
Market sentiment remains overwhelmingly bearish. However, futures firmed even though the increase in the S&P/CaseShiller home price index was smaller than anticipated.
We are seeing more and more attention being paid to the potential impact of the mid-term elections in November. One of the internet betting sites is predicting a 77% probability that the Republicans will take control of the House and there is a 63% probability that the Democrats will retain control the Senate. History has shown that a gridlocked Congress is bullish for stock index futures. This political influence on the market is likely to dominate over the impact of the economic reports, as we get closer to November.
CURRENCIES
The Japanese yen continued to advance on safe haven buying and on the belief that the Bank of Japan will not intervene to weaken the yen any time soon. It is also thought that the BOJ's recent decision to ease credit conditions further will not be sufficient to weaken the yen against the U.S. dollar. Some analysts believe that intervention, just from the BOJ, will not be sufficient to reverse the uptrend in the yen and that only coordinated central bank intervention will be able to halt the rise in the yen. The Ministry of Finance has not entered the foreign exchange markets since March 2004.
The euro is higher even though it was reported that euro zone inflation slowed in August. Annualized inflation in the euro zone fell to 1.6% in August from the 1.7% rate that was reported in July.
The British pound registered a five-week low against the U.S. dollar even though U.K. consumer confidence unexpectedly increased in August. This was the first increase in six months.
The Swiss franc advanced against the euro to a record high in a safe haven move.
The Canadian dollar and the Australian dollar fell in a "risk off" move, in light of early weakness in stock index futures.
In spite of lower prices this morning for the "commodity currencies," the long term upside target for the Australian dollar is 95 and the long term upside objective for the Canadian dollar is parity with the U.S. dollar.
INTEREST RATE MARKETS
Because of the current flight to quality focus, the credit markets and stock index futures continue to trade inversely. Today U.S. Treasury futures are higher in response to lower stock index futures.
Currently, there is a 60% probability that the FOMC will increase their fed funds target by at least 25 basis points on or before their November 2, 2011 meeting.
Prospects of tighter credit conditions from the Fed continue to get pushed farther out into the future.
For more information, I can be reached at 877.690.7303 or via e-mail at alan.bush@archerfinancials.com. Additional research can be found at www.archerfinancials.com/research.aspx.
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