March 17, 2010
STOCK INDEX FUTURES
Global equity prices are mostly higher after the Federal Open Market Committee yesterday pledged to keep interest rates low for an "extended period of time" in an effort to help the economy. A minority of analysts believed that the keeping interest rates low for an "extended period" language could have been eliminated. The FOMC left the federal funds rate unchanged at zero to 25 basis points, where it has been since December 2008. The fed also said the labor market is stabilizing and business spending has risen, while inflation remains subdued.
The Mortgage Bankers Association reported that mortgage applications were down 1.9% in the week ended March 12.
The February producer price index was down .6%, which compares to an estimate of a .2% decline and the producer price index, excluding food and energy, was up .1% as anticipated.
At 1:00 Central Time Fed Chairman Bernanke and former Fed Chairman Volcker will testify before a House hearing on bank supervision.
Fisher of the Federal Reserve will speak at 3:30.
S&P futures are now at their highest levels since October 2008.
Our research continues to tell us that this bull market will continue through 2010.
CURRENCIES
The British pound is higher after the National Statistics Office reported that U.K. jobless claims unexpectedly fell 32,000, last month, which is the fastest rate since 1997. A 6,000 increase was expected by analysts.
The Swiss franc advanced to a 17 month high against the euro 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 after the Bank of Japan doubled the size of a loan program that was designed to counter deflation. This change in policy is a form of easier credit, which is bearish for the yen.
The Australian dollar and the Canadian dollar are higher due to favorable interest rate differential expectations, along with prospects of higher commodity prices. The AD is also being supported by ideas that the Reserve Bank of Australia will continue to increase interest rates this year. The CD was helped by the belief that Canada may be the first of the Group of Seven nations to eliminate its budget deficit. The Canadian economy grew at an annual rate of 5% in the fourth quarter of last year.
In addition, there is virtually a 100% probability that the Bank of Canada will increase their benchmark interest rate by 25 basis points at their July meeting.
The Australian currency is likely to be the strongest currency this year, followed by the Canadian dollar.
INTEREST RATES
Futures advanced yesterday afternoon after the FOMC decided to maintain their current accommodative credit policy.
There was some additional support when the bullish on balance U.S. producer price index report was released this morning.
Tomorrow the Treasury will announce details of next week's auctions of two, five and seven year notes. It is estimated that the Treasury will sell $44 billion in two year notes on March 23, $42 billion in five year notes on the 24th and $32 billion in seven year notes on March 25th.
Currently, financial markets are factoring in a 77% 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 2011.
We are in the early stages of a new bear market for Treasury futures and the thirty year Treasury bond is likely to be the weakest performer.
Questions or comments about this article? Please call 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.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
