STOCK INDEX FUTURES    

Futures are sharply higher after a report showed manufacturing in China increased more than anticipated. China's purchasing managers index increased to 51.7 from 51.2.  The median estimate for this report was 51.5. A stronger than anticipated gross domestic product report in Australia renewed the belief that the global economy is recovering.

The Mortgage Bankers Association reported mortgage applications were up 2.7% in the week ended August 27.

Challenger reported planned jobs cuts in August, on an annual basis, were down 54.5%. This compares to a 57.2% decline in July.

The Automatic Data Processing employment change report showed a 10,000 decline, which compares to an estimate of a 15,000 increase.

The 9:00 Central Time, August Institute for Supply Management manufacturing index is anticipated to be 52.7 and the prices paid portion of the report is expected to be  55.3.

The 9:00 July construction spending report is expected to show a .5% decline.

Vehicle sales for August will be reported later today. Domestic vehicle sales are anticipated to be 8.85 million and total vehicle sales are expected to be 11.55 million.

We are seeing more and more attention being paid to the potential impact of the mid-term elections in November. As we get closer to the elections in November, the political influence on the market is likely to dominate over the impact of the economic reports.

One internet betting site is predicting a 76% probability that the Republicans will take control of the House and that there is a 66.5% probability that the Democrats will retain control the Senate. History has shown that a gridlocked Congress is bullish for stock index futures.   

CURRENCIES  

In the overnight trade, the safe haven currencies, U.S. dollar and the Japanese yen, came under selling pressure, especially after the stronger than expected Chinese manufacturing data was released.  

The British pound advanced even though a report showed U.K. manufacturing growth dropped to a nine month low in August.

The Australian dollar is sharply higher after a government report showed gross domestic product increased more than anticipated. The revised first quarter gross domestic product advanced 1.2% from a previously reported .7% increase. The median estimate was a .9% gain. This is the fastest rate of increase in three years.

The long term trend for the "commodity currencies," the Australian dollar and the Canadian dollar is higher. The long term upside target for the Australian dollar is 95 and the long term upside objective for the Canadian dollar is parity with the U.S. dollar.

INTEREST RATE MARKETS   

Yesterday's release of the minutes of the August 10 FOMC meeting showed officials saw "increased downside risks to the outlook for both growth and inflation."

Futures are lower today because of mostly higher global equity prices, stronger commodity prices, along with better than anticipated economic data from China and Australia.

Federal Reserve speakers today are Duke at 9:45, Fisher at 12:40 and Evans at 4:15 this afternoon.

Prospects of tighter credit conditions from the Fed continue to get pushed farther out into the future. Currently, there is a 60% probability that the FOMC will increase their fed funds target by at least 25 basis points on or before their November 2, 2011 meeting.

For more information, I can be reached at 877.690.7303 or via e-mail at alan.bush@archerfinancials.com. Additional research can be found at www.archerfinancials.com/research.aspx.

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