STOCK INDEX FUTURES
In the overnight trade, prices were higher for no apparent reason, which in itself was an indication that further strength is likely. There were additional gains after the bullish weekly jobless claims report was released.
Jobless claims in the week ended September 4 were down 27,000 to 451,000, which compares to an estimate of 470,000. This is the lowest number of claims in two months. Continuing claims in the week ended August 28 were 4.478 million, when 4.450 million were anticipated.
Equity markets in Europe advanced to a four-month high, which may be helping to pull up U.S. equity futures markets.
One internet betting site is predicting a 70.5% probability that the Republicans will take control of the House, while there is a 60% probability that the Democrats will retain control the Senate. As we get closer to the elections in November, the political influence on the market will become more important. Keep in mind that a gridlocked Congress is bullish for stock index futures, according to history.
I believe that many analysts and traders are focusing too much attention on the problems in Europe and not enough attention on the potentially bullish U.S. political situation.
CURRENCIES
The July U.S. trade balance report showed a $42.8 billion deficit, which compares to an estimate of a $47 billion deficit.
The euro is higher because of a slightly better tone to the European debt situation.
The British pound fell after the U.K. Deputy Prime Minister said the recovery in the U.K. economy will be uneven. There was additional selling pressure when the weaker than expected U.K. trade data was released.
The Australian dollar advanced to a four month high after a government report showed employers in Australia added 30,900 workers in August. This compares to the median estimate of a 25,000 increase. This is the sixth consecutive month of higher employment numbers, which puts additional pressure on the Reserve Bank of Australia to increase their benchmark interest rate from the current 4.5%.
The Canadian dollar advanced to a three week high against the U.S. dollar after the Bank of Canada hinted that they are in a mood to increase interest rates further.
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
The Federal Reserve said in their Beige Book, which was made public yesterday, that the economy continued to expand, while showing "widespread signs" of a deceleration. The next FOMC meeting is scheduled for September 21.
Treasury futures are lower due to mostly higher global equity prices, along with firming commodity prices. There was almost no bullish response when the Organization for Economic Cooperation and Development said the global economic recovery is slower than previously estimated.
The Treasury will auction $13 billion of thirty-year bonds today, which is the last part of a $67 billion series of offerings this week.
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.
The charts are looking toppy for 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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