STOCK INDEX FUTURES
There were gains in the overnight trade after China promised to help resolve the financial crisis in the euro zone, along with news that Greek government officials said they would produce written austerity pledges in exchange for financial assistance from the European Union.
The promise to help from China should not be taken too seriously. In the last year there have been similar offers from China to help, but were basically rejected when financially troubled euro area nations learned that financial assistance from China was linked to the sale of state owned assets to China at bargains levels.
The Mortgage Bankers Association reported mortgage applications in the week ended February 10 declined 1%, which compares to the 7.5% increase in the previous week.
The New York Federal Reserve manufacturing index, also called the Empire State manufacturing index, was 19.53, when 15 was expected.
January industrial production was unchanged, which compares to the median estimate of a .7% increase and January capacity utilization was 78.5%, when 78.6% was anticipated.
The 9:00 central time February National Association of Home Builders housing market index is expected to be 26.
The minutes of the January 24-25 Federal Open Market Committee meeting will be released at 1:00. The minutes are likely to show policy makers saw the need for additional easing.
CURRENCY FUTURES
The euro gained in the overnight trade due to another offer from China to help the euro zone with their financial problems. The euro was also supported by news that fourth quarter gross domestic product in the euro zone contracted by .3%, which compares to the median estimate of a .4% contraction.
This is the first gross domestic product contraction in the euro zone economy since the second quarter of 2009.
The euro zone finance ministers meeting, that was scheduled for today in Brussels, was cancelled in an effort to prod Greece into providing a more solid commitment to follow through on their promises of additional austerity measures. They will hold a teleconference instead.
The British pound is higher even though the Bank of England said the U.K. economy is likely to remain weak.
The commodity currencies, the Australian dollar and the Canadian dollar, advanced on news that China could help alleviate the financial problems in the euro zone.
The euro is underperforming the news today.
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
Futures declined in the overnight trade after China promised to help resolve the financial crisis in the euro zone.
Treasury futures firmed later when the bullish industrial production and capacity utilization reports were released.
Longer term, Treasury futures are likely to be supported by a variety of flight to quality influences.
These include 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.
Expect Treasury futures to trade higher from 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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