STOCK INDEX FUTURES   

Prices are lower due to the lack of progress in the Greek debt swap negotiations, a surprise drop in German industrial output in December, and after China said growth in their industrial production could slow.

The 2:00 central time, December consumer credit report is expected to show a $7 billion increase.

At 9:00, Federal Reserve Chairman Bernanke will testify before the Senate Budget Committee on the outlook for the U.S. economy and monetary policy.

CURRENCY FUTURES  

The euro is lower due to worries that Greece will not be able to reach an agreement that would allow it to receive additional bailout funds.  Negotiations with the private holders of Greek sovereign debt are continuing.

The Greek government must secure additional funds from the European Union before March 20, which is when Greece must make a 14.5 billion euro bond payment.

There was pressure on the euro after German industrial output in December declined by the most in three years. Industrial production dropped 2.9% from the November level, when unchanged had been anticipated.

It was just last week that we heard reports that China was interested in purchasing euro zone sovereign debt. However, today we learn that Chinese banks reduced their exposure to the euro zone.

The British pound is lower after a report showed U.K. retail sales were substantially weaker than anticipated, showing their second worst January ever.

The Swiss franc gained against the euro after the Swiss National Bank said the franc remains strong and policy makers cannot permit the currency to appreciate further.

The Japanese yen is little lower after government data showed Japan quietly was selling yen in foreign exchange markets in the fourth quarter of last year. The Ministry of Finance said they sold 9.09 trillion yen against the U.S. dollar in late October and early November. The BOJ said they would not rule out more intervention against the yen.

The Australian dollar is higher after the Reserve Bank of Australia maintained their benchmark interest rate at 4.25%. This came as a surprise since analysts were widely anticipating a 25 basis point cut to 4%.

Our analysis indicates the euro zone economy will enter into recession and the value of the euro will decline against the U.S. dollar in the long term.

INTEREST RATE MARKET FUTURES  

The Treasury will auction $72 billion of debt this week.  They will offer $32 billion of three-year notes today, $24 billion of 10-year notes tomorrow and $16 billon of 30-year bonds on Thursday. Today's auction is expected to be well received. However, the following offerings may have more trouble.

This week's supply is exerting some pressure on futures. However, the selling is likely to be limited by fears that the lack of a Greek debt swap deal could result in a chaotic Greek debt default.

In the longer term, Treasury futures are likely to be supported by evidence that growth in the global economy is slowing.

In addition, there are a variety of flight to quality influences, including the continuing tensions in the Middle East, increasing prospects of a recession in the euro zone, a trend toward weaker economic data from China, along with fears that the Chinese economy is headed for a hard landing.

Expect Treasury futures to trade higher from the current lower levels.

For more marketplace information, I can be reached at 312.242.7911 or via e-mail at alan.bush@archerfinancials.com.

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