February 3, 2010
STOCK INDEX FUTURES
The Mortgage Bankers Association reported mortgage applications were up 21% in the week ended January 29, which compares to a10.9% decline in the previous week.
Prices firmed when the Automatic Data Processing employment change report showed a 22,000 decline, when a drop of a 30,000 was anticipated.
The 9:00 Central Time Institute for Supply Management Composite Index is expected to be 51.
Treasury Secretary Geithner will testify before the House Ways and Means Committee at 9:00 and at 12:00 Warsh, of the Federal Reserve, will speak to the New York Association for Business Economics.
Our work continues to suggest that all this year the majority of the economic reports and corporate earnings reports will be stronger than the median estimates.
Our analysis is telling us that a strengthening economy will be able to overcome all other influences, including the political ones.
This bull market will continue through 2010 and we are expecting new yearly highs for the indexes.
CURRENCIES
The euro firmed against the U.S. dollar after Greek Prime Minister Papandreou announced further measures to limit their budget deficit of 12.7% of GDP to the mandated European Union's limit of 3% by the end of 2012. This plan received the approval of the European Commission.
The British pound fell even though U.K. consumer confidence in January increased 3 points from the 73 level in December, according to the Nationwide Building Society.
The commodity currencies, the Australian dollar and the Canadian dollar, are relatively firm today.
The Australian dollar can move higher from current levels now the yesterday's bearish central bank policy decision is out of the way.
INTEREST RATES
Today's declines were being linked to supply concerns. Later today the Treasury will announce the details of the upcoming quarterly refunding program.
There also appears to be some carry over negative impact from yesterday's release of President Obama's budget proposal, which will expand the budget deficit by more than analysts had expected.
The next Federal Open Market Committee meeting will be held on March 16th. No change in policy is expected .There is now only a 40% 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 August 10th meeting, according to the financial futures markets.
In an apparent effort not to be accused of being political, the FOMC in the past has shown a tendency to not make policy changes just before important political events. This is one reason why we believe that the next tightening of credit may not take place until after the mid-term elections or even not until 2011.
We believe that we are in the early stages of a new bear market, especially for the longer dated issues.
Questions or comments about this article, I can be reached at 312.242.7911 or via e-mail at alan.bush@archerfinancials.com.
Additional research can be found at www.archerfinancials.com/research.aspx.
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