STOCK INDEX FUTURES   

Prices quickly advanced after the substantially stronger than expected employment data was released.

January nonfarm payrolls increased 243,000, which compares the estimate of a 140,000 advance and private payrolls were up 257,000, when an increase of 160,000 was anticipated. The unemployment rate declined .2% to 8.3%, which compares to the median estimate of 8.5%.

The 9:00 central time, December factory orders report is expected to show a 1.5% increase and the January Institute for Supply Management nonmanufacturing index is expected to be 53.2.

According to a Bloomberg report, approximately 66% of the 258 corporations in the S&P 500 that have reported earnings since January 9 have beat analysts' estimates.

CURRENCY FUTURES

Euro zone retail sales declined for a second month in December, falling .4%.

Negotiations with the private holders of Greek sovereign debt are continuing. Every day, for the past few weeks, we have heard that an agreement in imminent.

The Greek government must secure additional funds from the European Union before March 20, which is when Greece must make a 14.5 billion euro bond payment.

The Japanese yen came off a three-month high against the U.S. dollar due to daily threats from monetary officials in Japan that the Ministry of Finance will intervene against the yen. Today, Japan's finance minister said he will take decisive steps to counter one-sided movements in the yen, if necessary.

The British pound is lower in spite of a report that showed the services industry in the U.K. in January unexpectedly improved. The index increased to 56 from 54 in December. The median estimate was 53.3. The pound appears to be underperforming the news. 

The pound is being undermined by talk that U.K. gross domestic product could show negative growth in the first quarter. The National Institute for Economic and Social Research said gross domestic product could decline .2%.

The Canadian dollar is lower after a disappointing Canadian employment report. Statistics Canada said employment in Canada in January increased by only 2,300, which compares to the median estimate of an increase of 23,100. Unemployment increased to 7.6%, when 7.5% was anticipated. 

The Reserve Bank of Australia will hold their regularly scheduled policy meeting on February 7.  Financial markets are currently predicting there is almost a 60% probability that the RBA will reduce their benchmark interest rate by 25 basis points from the current level of 4.25%.

Our analysis indicates the euro zone economy will enter into recession and the value of the euro will decline against the U.S. dollar in the long term.

INTEREST RATE MARKET FUTURES  

Prices quickly fell on news that the U.S. employment report was much stronger than market expectations.

Yesterday, Federal Reserve Chairman Bernanke said there are indications that some of the factors that were limiting U.S. business investment were starting to wane.

In the longer term, Treasury futures are likely to be supported by a variety of flight to quality influences, including the continuing tensions in the Middle East, increasing prospects of a recession in the euro zone, a trend toward weaker economic data from China, along with fears that the Chinese economy is headed for a hard landing.

In addition, futures continue to be supported by the FOMC's recent pledge to keep interest rates low, at least until the end of 2014.

Expect Treasury futures to trade higher from the current lower levels.

For more information, I can be reached at 312.242.7911 or via e-mail at alan.bush@archerfinancials.com.

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