Heaven Sent

  • February 26, 2001
  • Marc Dupee

Financial futures bulls had prayers answered today after
a former Federal Reserve official broadcast his upped predictions that the
central bank’s monetary policy committee would cut interest rates before their
next regularly scheduled meeting in March. Wayne Angell said there was now an
80% chance that the Fed would cut rates this week, up from the 60% chance the
ex-Fed governor handicapped late Friday.

The April Federal Funds futures
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discounting a 50-basis-point-cut by the March meeting and about a 40% chance of
a 75-point cut. The July Fed Funds futures contract
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to discount the upped forecasts as well, fully pricing in a 75-point cut and
pricing in a 60% chance of a total 100-basis-point
(1%) cut by the Fed’s June meeting. 


T-bonds
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providing resistance to close 16/32 higher at 104 9/32.

Ten-year notes
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Stock index futures had an unusually bullish six
up-signals from the
Market
Bias Indicators Page, suggesting they could rally today. Three up signals
from this page is generally a critical mass strongly tipping the odds in favor
of a rally. Six indicators only tip the scales more strongly in a trader’s favor
and should be given special attention.

Following Angell’s comments, the indexes made solid gains
with blue chips leading the way. S&P futures
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their highs, making up an early deficit to finish 26.10 higher at 1273.60.


Dow futures
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which rallied on guidance higher from competitor Lowes and overcame weakness
from Proctor & Gamble’s
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futures closed 203.0 higher at 10,688.0. Nasdaq 100 futures
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had trouble over coming Texas Instrument’s second guidance lower in as many
months, but still managed a close 42.50 higher at 21.00.00.

Since currency futures were closed when ex-governor Angel
issued his forecasts for an early rate cut, today was their first chance
currency futures had a chance to respond.

March dollar index futures
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and settled .73 higher at 112.80. The chance for a recovery in the
stock market is seen as dollar-positive, if only for the short-term. If
rates do fall as much as is being priced into the July Fed Funds futures, the easing would bring (short-term) US and German rates to within one percentage
point of each other, undermining the dollar’s allure. 

Advances in the dollar–and the corresponding declines in

euro FX
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Swiss franc
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be limited as traders shift their focus back to interest rate differentials between
the US and Europe. Lower interest rates in the US would make holding
dollar-denominated assets relatively less attractive than holding
euro-denominated assets. 

From the Implosion-5
and Pullback From Lows
lists, the soybean complex remains poised at lows after Friday’s gaps to new
six-month lows.

In a very positive sign for pork, March pork bellies
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traced an outside-day-on-high pattern. Markets that form outside days generally
follow through in the direction of the close. Livestock contracts, including
bellies and April lean hogs
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List. Bellies closed .975 higher at 76.050 and hogs added .300 to 62.425.

From the Implosion-5 List,
cocoa
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closing below the mid-line of the engulfing bar in the past two day’s action in
more price-action evidence of a top. The May contract finished down 44 at 112.