STOCK INDEX FUTURES
There was limited market moving news in the overnight trade. Futures firmed when the 7:30 U.S. retail sales report was released.
The NFIB small business optimism index for August was 88.8, which compares to an estimate of 89.
August advance retail sales were up .4%, when a .3% advance was anticipated and retail sales, excluding autos, expanded .6%, when a .3% increase was expected. The increase in retail sales is the largest in five months.
The 9:00 Central Time July business inventories report is anticipated to show a .7% increase.
The political situation appears to be becoming more of a bullish influence. This appears to be somewhat of a stealth influence that is likely to become even more important as we get closer to the November 2 elections. One internet betting site is predicting a 71.5% probability that the Republicans will take control of the House, while there is a 61.5 probability that the Democrats will retain control the Senate. According to history, a gridlocked Congress has been bullish for stock index futures. We are anticipating that the upcoming elections will be no exception.
CURRENCIES
The euro dropped after a report showed German investor confidence dropped to a 19 month low in September. The ZEW Center for European Economic Research said its index of investor expectations fell to -4.3 from 14 in August. The median estimate for this report was 10.
The Swiss franc advanced to parity with the U.S. dollar for the first time since last December. The Swiss franc is often seen as a safe haven currency, especially against the euro.
The British pound firmed in the overnight trade after a government report showed U.K. inflation unexpectedly increased to beyond the government's 3% target rate for the sixth consecutive month. The Office for National Statistics said consumer inflation increased 3.1% in August from a year ago. The median guess called for a 3% advance.
The Japanese yen advanced to a 15 year high against the U.S. dollar after Prime Minister Kan beat a rival in a party vote today. This reduces the possibility that the Ministry of Finance will intervene in the short run to weaken the value of the yen.
The Australian dollar and the Canadian dollar advanced to one month highs against the U.S. dollar due to the bullish influence of rising commodity prices.
The long term upside target for the Australian dollar remains at 95 and the long term upside objective for the Canadian dollar is parity with the U.S. dollar.
INTEREST RATE MARKETS
Futures are mostly higher due to mixed to lower global equity prices.
There is some underlying support on the belief that the Federal Reserve is ready to increase the amount of planned asset purchases (quantitative easing), if necessary.
Currently, there is an 82% probability that the FOMC will increase their fed funds target by at least 25 basis points on or before their November 2, 2011 meeting.
The charts are looking toppy for Treasury futures, especially for the ten and thirty year Treasury futures.
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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