GDP Sets Financial Futures’ Agenda
An unexpected rise in gross domestic product (GDP) is spurring adjustments to
financial futures positions. GDP came in nearly twice as strong as forecast, up
2% versus estimates of a 1.1% rise. Currencies and debt futures are making the
biggest moves in financial futures but the impact may effect stock index futures
later in the day (or days) as they adjust to technical indications of being
overbought.Â
Dollar index futures
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believed weakening economy will not result in investors pulling money out of the
US in search of higher returns abroad. The DXM1 is rallying in an outside bar
off a recent one-month low, up 1.05 at 115.64.
The euro FX
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dollar index, is down in its biggest decline in over a month as traders ignore
the approximately .25% higher short-term interest rate available in Europe and
train their focus on potential relative economic growth rates. The euro FX is
down .01160, and Swiss francs
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Also in the currencies and working to boost dollar index futures, more bad
news out of Japan drove the yen lower in overnight trading (the yen is up from
the opening tick in CME open outcry trading). Yesterday, Japan’s new Prime
Minister announced he would appoint a bureaucrat with no finance background to
the Financial Ministry post. Today, Japanese newspapers said the governor of the
Bank of Japan, Masaru Hayami, will resign next month. A weak industrial
production report underscored chronic economic malaise and the recent
appointments and resignations cast more doubt about Japan’s capacity to put its
financial and economic houses in order. In fact, who is minding the house? The
June yen is down .0037 at .8130.
T-bonds
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the Fed will remain on the aggressive in cutting interest rates to prevent the
economy from going into recession. T-bonds fell on the GDP report, are trading
just above their Pullback
From Lows trigger, and are tracing a Kings & Queens pattern where
yesterday’s big up bar has been (nearly) completely erased by today’s down bar.
Near a low, this is often the sign of additional downside.
Although higher on the euphoria that the economy may not be as bad as feared
(revised GDP figures are still to be released), stock index futures may have to
contend with the possibility that the Fed will not cut rates as much as the
25-basis-points expected next month. In fact, it’s possible that the Fed may not
cut rates at all when it meets in May! If the Fed takes its foot off the
economic stimulating, rate-cutting accelerator, equity futures could slump as
some of the recent gains are being fueled by expectations of aggressive cutting.
Stock indexes are also overbought, as indicated by the McClellan Oscillator on
the Market
Bias Indicators Page. Additionally, any move in the Dow futures below 10,755
would trigger the June contract’s
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Soup Plus One Sell setup.
The leading contract on the Momentum-5
List, June unleaded gasoline
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Persian Gulf War. Lower refinery capacity — no new plants have been built in 25
years — and fragmented “cleaner” unleaded gasoline formulation standard
requirements are fueling fears of summer shortages. HUM1 is up .0137 at 1.0440