STOCK INDEX FUTURES
Global equity markets were under pressure yesterday due to worries that European banks will need more capital in order to shore up their balance sheets.
However, global equity prices are mostly higher today because of a slightly better tone to the European debt situation. The results of the Portuguese bond auction were not as bad as some analysts had feared.
The Mortgage Bankers Association reported mortgage applications were down 1.5% in the week ended September 3. There was a 2.7% increase in the previous week.
The Federal Reserve's "Beige Book" report on the economy will be released at 1:00 Central Time. Many analysts believe that the Fed's report will say that the economy is growing, but at a slow rate. The next FOMC meeting is scheduled for September 21.
The 2:00 July consumer credit report is anticipated to show a $4.7 billion decline, which would be the sixth consecutive drop.
The consensus view on the direction of stock index futures prices still appears to be overwhelmingly bearish. I believe that analysts and traders are focusing too much attention on Europe and not enough attention on the potentially bullish U.S. political situation.
As we get closer to the elections in November, the political influence on the market will play a more important role. Keep in mind that a gridlocked Congress is bullish for stock index futures, according to history. One of the larger internet betting sites is predicting a 71% probability that the Republicans will take control of the House, while there is a 58% probability that the Democrats will retain control the Senate.
CURRENCIES
The Japanese yen is a little lower on ideas that the Bank of Japan may soon take steps to weaken the yen. Japan's finance minister said he is ready to take "bold" action on currencies, if needed.
The Swiss franc gained on the euro to near a record level.
The British pound advanced after it was reported that U.K. house prices unexpectedly increased .2% in August. It is widely expected that the Bank of England will leave their benchmark interest rate unchanged at a record low of 50 basis points when they tomorrow.
The Australian dollar gained on the belief that an employment report, to be release tomorrow, will show employers added to the work force for the sixth consecutive month. In addition, there was a 1.7% increase in July in the number of loans approved to build or purchase homes and apartments.
The long term upside target for the Australian dollar remains at 95 and the long term upside objective for the Canadian dollar is parity with the U.S. dollar.
INTEREST RATE MARKETS
Yesterday's gains were primarily due to the renewed focus on the debt situation in Europe. However, prices are a little lower today in light of a slightly better tone to the European financial situation.
The Treasury will auction $21 billion of ten-year notes today. The treasury is auctioning a total of $67 billion in securities this week.
Currently, there is a 58% probability that the FOMC will increase their fed funds target by at least 25 basis points on or before their November 2, 2011 meeting.
The charts are looking toppy for the longer dated Treasury futures.
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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