March 16, 2010
STOCK INDEX FUTURES
Mild overnight gains were linked to the perceived lessened risk of a sovereign debt default by Greece and after Senate Banking Committee Chairman Dodd proposed a diluted overhaul of banking rules.
February housing starts were 575,000, which compares to an estimate of 570,000 and housing permits were 612,000, when 601,000 were anticipated. This was also supportive.
At approximately 1:15 Central Time the Federal Open Market Committee's interest rate decision will be released. It is widely expected that the FOMC will leave the fed funds target rate at zero to 25 basis points. However, a minority of analysts believe that the keeping interest rates low for an "extended period" language could be eliminated.
S&P futures are now at their highest levels since October 2008.
Our analysis continues to suggest that the majority of economic reports will be stronger than the analysts' estimates.
Our research also continues to tell us that this bull market will continue through 2010.
CURRENCIES
The euro is higher and the U.S. dollar is lower after European finance ministers, meeting in Brussels, agreed to a strategy for emergency loans to Greece.
The euro was also supported by news that German investor confidence fell less than anticipated in March. The ZEW confidence index fell to 44.5 from 45.1 in February. The median guess was 43.5.
The Swiss franc recently advanced to a 17 month high against the euro on ideas that the Swiss economy will outperform the euro zone economy and on ideas that the Swiss National Bank may be less inclined to intervene in foreign exchange markets if their currency continues to advance against the euro.
The Japanese yen is lower on the belief that the Bank of Japan will ease monetary policy further at their policy meeting, which starts today and continues tomorrow.
The Canadian dollar is likely to trade higher due to favorable interest rate differential expectations, along with prospects of higher commodity prices. It was recently reported that the Canadian economy grew at an annual rate of 5% in the fourth quarter of last year, which was the fastest rate of growth since 2000.
Currently, financial markets are factoring in a 22% chance that the Bank of Canada will increase their benchmark interest rate by 25 basis points to 50 basis points at their June meeting and there is virtually a 100% probability that they will increase the rate by 25 basis points at the July meeting.
The minutes of this month's Reserve Bank of Australia meeting showed policy makers increased borrowing costs due to the belief that the inflation risks associated with of faster economic growth outweighed the possible risk for renewed financial market instability. The AD is also being supported by ideas that the RBA will continue to increase interest rates.
In the long term, the Australian currency is likely to be the strongest currency this year, followed by the Canadian dollar.
INTEREST RATES
There is likely to be limited volatility until the Fed's announcement at around 1:15.
At 9:00 Treasury Secretary Geithner will testify before a House committee on the federal budget.
Currently, financial markets are factoring in a 95% probability that the Federal Open Market Committee will increase their fed funds target by 25 basis points to 50 basis points on or before their November 3 meeting. Our analysis suggests that the FOMC will not increase interest rates until next year.
We also believe that we are in the early stages of a new bear market for Treasury futures. The thirty year Treasury bond is likely to be the weakest performer.
Questions or comments about this article? Please contact us at 1.877.690.7303 or send an email to alan.bush@archerfinancials.com. Additional research can be found at www.archerfinancials.com/research.aspx.
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