February 4, 2010
STOCK INDEX FUTURES
European equity markets fell due to fears that Portugal, Spain and Greece will continue to have problems in their attempts to control their budget deficits. The insurance premium (credit-default swaps) to insure the sovereign debt of Portugal and Greece increased to a record.
Initial jobless claims in the week ended January 30th were up 8,000 to 480,000, which compares to an estimate of 455,000 and continuing claims in the week ended January 30th were 4.602 million, when 4.581 million were anticipated. This put additional pressure on stock index futures.
The 9:00 Central Time December factory orders report is expected to be up .5%.
At 9:00 Treasury Secretary Geithner will testify before the Senate Budget Committee and at 1:00 Hoenig of the Fed will speak to the Oklahoma Bankers Association.
In spite the weak jobless claims report today, our work continues to suggest that 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.
CURRENCIES
The U.S. dollar continued to gain against the euro as several members of the euro zone have ongoing issues with their above target budget deficits. There was additional pressure on the euro after Greece's largest union planed to strike on news of Prime Minister Papandreou's plan to raise taxes and increase the retirement age.
The European Central Bank left their benchmark interest rate unchanged at 1%, which was widely anticipated.
The ongoing budget problems in the euro zone helped the "safe haven" Japanese yen to advance.
The British pound partially recovered from earlier losses after the Bank of England paused their 200 billion pound bond asset purchase plan. The U.K. central bank left their benchmark interest rate at a record low of 50 basis points.
The Australian dollar fell after Australian retail sales fell for the first time in five months.
INTEREST RATES
The budgetary problems in the euro zone enhanced the flight to quality status of the U.S. Treasuries.
There is now only a 38% 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. No change in policy is expected at the next Federal Open Market Committee meeting, which will be held on March 16th.
We believe that the next tightening of credit from the Federal Open Market Committee will 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, 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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