February 26, 2010
STOCK INDEX FUTURES
The fourth quarter gross domestic product was up 5.9%, when an increase of 5.7% was expected and personal consumption increased 1.7%, which compares to an estimate of a 2% advance.
The 8:45 Central Time February Chicago purchasing manager index is expected to be 59.7 and the 8:55 February University of Michigan confidence index is anticipated to be 73.9.
The 9:00 January existing home sales report is guessed to be 5.5 million.
The main trend for futures is higher.
CURRENCIES
The flight to quality status of the U.S. dollar was undermined after the cost of insuring the sovereign debt of Greece fell for the first time in five days.
The euro gained after Greece reported higher than anticipated revenues, along with a small decline in credit default swap rate for the sovereign debt of Greece.
The British pound fell against the greenback and the euro after a report showed larger than expected U.K. government spending in the fourth quarter.
The Japanese yen gained after it was reported that factory output expanded for the eleventh consecutive month in January, according to the Trade Ministry. In addition, there was a 2.6% increase in retail sales.
The Canadian dollar is higher due to firming commodity prices. The Bank of Canada's next policy meeting is scheduled for March 2nd. Analysts think that Canada's central bank will keep interest rates unchanged at the record low level of 25 basis points at that meeting and at least though June.
The Australian dollar gained after the Reserve Bank of Australia said loans provided by financial institutions increased .4% in January after a .3% increase in the previous month.
Currently there is a 40% chance that the RBA will increase interest rates by 25 basis points to 4% at their next meeting on March 2nd. The feeling remains that the Reserve Bank of Australia will continue to increase their benchmark interest rate through 2010.
In the longer term, favorable interest rate differentials should be able to take the Australian dollar to new highs for the move.
INTEREST RATES
Prices are higher now that the supply issue is temporarily out of the way. Some of the support appears to be technical.
The probability that the Federal Open Market Committee will increase the fed funds target by 25 basis points to 50 basis points at or before their September 21st meeting dropped to 26%, according to the financial futures markets. This is down from 28% yesterday and 64% late last week.
In an effort not to appear political, the FOMC has shown a tendency to not change policy during politically sensitive times such as the November midterm elections.
Our analysis continues to suggest that the FOMC will not increase their fed funds target rate until next year.
In spite of the recent price gains for futures, we believe that the main trend for the longer dated issues is lower.
If you have any questions or comments about this article, please send an email to alan.bush@archerfinancials.com or contact us at 1.877.690.7303. Additional research can be found at www.archerfinancials.com/research.aspx.
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