STOCK INDEX FUTURES
Prices declined due to the weaker than expected gross domestic product reports in the euro zone and in Japan. However, there was some temporary bounce when the bullish weekly jobless claims report was released.
Jobless claims in the week ended February 9 declined 27,000 to 341,000, which compares to the estimate of 360,000.
Futures remain extremely overbought. Longer term, this market appears to be on a collision course with rising long term interest rates, which are approaching ten month highs.
The euro is sharply lower after reports showed gross domestic product in the euro zone shrank by .9% in the fourth quarter and the gross domestic product in Germany contracted .6%. The weak euro zone gross domestic product report is the worst performance in almost four years. Both gross domestic product reports were worse than the median estimates.
The British pound fell to a new six month low against the U.S. dollar after the Bank of England said it could implement more stimulus.
Expect lower prices for the British pound.
Japan's gross domestic product in the fourth quarter contracted .1%, which compares to the estimate of a .1% expansion.
The Bank of Japan concluded their two day policy meeting today. The reason that the yen is holding up today, in spite of the worse than expect gross domestic product report, is because the BoJ did not expand their asset purchase plan at their meeting.
The Japanese yen is very close to its May 2010 low.
The yen will probably continue to work lower.
INTEREST RATE MARKET FUTURES
In light of the contracting gross domestic product reports from the euro zone and Japan, flight to quality buying came into Treasuries.
Federal Reserve speakers today are Tarullo at 9:30 and Bullard at 11:50.
The Treasury is holding their quarterly refunding auctions this week, totaling $72 billion. Yesterday they sold $24 billion of 10 year notes, which drew weak demand, and today they will sell $16 billion of 30 year bonds.
Treasury futures remain close to ten month lows even though the Federal Reserve continues to buy an unprecedented $85 billion in Treasuries and mortgage-backed securities every month. This has to be viewed as a bearish signal for futures.
The multi-year bull market is over for the Treasury futures market, only subject to temporary flight to quality rallies.
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