No-Confidence Vote By Consumers

  • January 30, 2001
  • Marc Dupee

Financial futures are reeling in reaction to this morning’s consumer confidence
report, which showed its biggest decline in over four years. Markets have taken
the report to mean that the Fed is likely to cut rates by 50 basis points, and
may in fact become more proactive by continuing to aggressively cut rates in
coming months. 

Indeed, the February federal funds futures
(
FFG1 |
Quote |
Chart |
News |
PowerRating) is
pricing in a slight chance–6%–of a 75-basis-point move by the end of February,
the expiration date of the FFG1. The March fed funds
(
FFH1 |
Quote |
Chart |
News |
PowerRating) priced in as
high as a 96% chance of a 75 basis point cut by the end of a March. April
(
FFJ1 |
Quote |
Chart |
News |
PowerRating) has priced in as high as a 100 b.p cut by the end of that month. By
the end of June, the futures is pricing in a certain 100 b.p cut and a 12%
chance of a 125 basis point cut. This would leave federal fund futures–the rate
the Fed charges banks for short-term loans–somewhere between 4.75% and 5.00% by
the summer.


T-bonds
(
USH1 |
Quote |
Chart |
News |
PowerRating) and 10-year notes
(
TYH1 |
Quote |
Chart |
News |
PowerRating) have also shot
higher now that economic conditions point to worsening economic conditions
ahead. USH1 are up 30/32 at 103 12/32 and TYH1 are up 21/32 at 104 29/32.

Stock index futures are still in a holding pattern ahead
of tomorrow’s FOMC rate announcement. However, the S&P futures
(
SPH1 |
Quote |
Chart |
News |
PowerRating)
have shown upside price persistency, enough to place them on the Momentum-5
List for the fifth consecutive day.
Nasdaq 100 futures
(
NDH1 |
Quote |
Chart |
News |
PowerRating) are on the Pullback From Highs List,
implying the possibility of another leg up. 

While most market observers are pondering what will
happen if the Fed cuts rates by 50, technical indicators in stock indexes are
pointing to a big move. Both the S&Ps and Dow futures
(
DJH1 |
Quote |
Chart |
News |
PowerRating) are
showing either 6/100 Low Volatility
or Multiple Days Low
Volatility readings. While these indicators do not predict market
direction–only a big move as volatility reverts back to its mean–the upside
biases from the above listed indicators give the index futures a positive slant.
Carolyn
Boroden’s analysis yesterday also suggests a time market-decision juncture
in the Naz futures. 

March dollar index futures
(
DXH1 |
Quote |
Chart |
News |
PowerRating) are crumbling on the prospect
of even lower interest rates here and higher relative rates in different nations.
The Japanese yen
(
JYH1 |
Quote |
Chart |
News |
PowerRating), euro FX futures
(
ECH1 |
Quote |
Chart |
News |
PowerRating),

Swiss franc
(
SFH1 |
Quote |
Chart |
News |
PowerRating),

British pound
(
BPH1 |
Quote |
Chart |
News |
PowerRating) and
Canadian dollar
(
CDH1 |
Quote |
Chart |
News |
PowerRating)Live cattle
(
LCG1 |
Quote |
Chart |
News |
PowerRating) and feeder cattle
(
FCH1 |
Quote |
Chart |
News |
PowerRating) plunged on mad cow fears that have been swirling in the media.
Feeders are exhibiting the second strongest downside momentum as indicated by
their Implosion-5 List
reading.