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A Less Hawkish Fed Has Long Term Bullish Implications for Stock Index Futures

by Archer Financial Services | Nov 29, 2018

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

Stock index futures surged yesterday after Federal Reserve Chairman Powell surprised the markets by delivering dovish comments on U.S. monetary policy in a speech to the Economic Club of New York.

Powell said currently U.S. interest rates are just below “neutral” levels and that the Fed will remain data dependent, and there is no set path for adjusting interest rates. Analysts interpreted Powell’s remarks as meaning the Fed will likely increase interest rates at its December meeting, but after that all bets are off on a gradual interest rate increase course next year. 

There was limited pressure today after President Trump said there was “a long way to go” on tariffs with China and urged companies to build products in the U.S.

President Donald Trump and Chinese President Xi Jinping are due to hold trade talks on the sidelines of the G-20 summit in Buenos Aires on Saturday.

Personal consumption expenditures increased a seasonally adjusted .6% in October from the prior month, which was the largest monthly increase since March. Personal income, rose .5% in October, which is the best gain since January.  Economists had forecast a .4% rise in both spending and incomes.

Initial jobless claims increased 10,000 to a seasonally adjusted 234,000 in the week ended November 24.  Economists expected 220,000 new claims last week.   

The 9:00 central time October pending home sales index is expected to be unchanged.

I thought Powel’s comments yesterday would be dovish, but they were even more dovish than I thought.

A less hawkish FOMC has long term bullish implications for stock index futures.

 

CURRENCY FUTURES

The U.S. dollar came under pressure yesterday when Powell delivered surprisingly dovish interest rate comments.

However, there are small flight to quality gains today after President Trump’s comments on trade with China.

The euro currency is steady on mixed data from the euro zone.

Germany’s jobless rate unexpectedly fell to record low 5% in November from 5.1% and the number of people out of work fell 16,000 compared with an estimated decline of 10,000. 

German inflation eased in November and was below forecasts.  Germany's annual inflation rate fell to 2.2% from 2.4% in October. Economists had forecast a rate of 2.3% in November. 

Financial futures markets are pricing in just over a 70% chance of a rate hike from the European Central Bank by the end of 2019, which is down from almost 100% earlier this month.

The Swiss franc is lower after a report showed the Swiss economy unexpectedly contracted in the third quarter.

The British pound is lower in spite of news that U.K. mortgage approvals unexpectedly increased to a nine month high, according to the Bank of England. 

   

INTEREST RATE MARKET FUTURES

Powell’s comments yesterday continue to support futures today. 

At 1:00 the Federal Open Market Committee will release the minutes from its November 8 policy meeting.

Federal Reserve speakers today are Cleveland Federal Reserve Bank President Loretta Mester at 1:00, Chicago Federal Reserve Bank President Charles Evans at 1:00 and Dallas Federal Reserve Bank President Robert Kaplan at 2:00.

According to the financial futures markets, the probability of a fed funds rate hike at the Federal Open Market Committee’s December 19 policy meeting is 83%, which compares to 79% yesterday.

I expect the interest rate futures market will likely trend higher, led by the thirty year Treasury bond futures.

I will be out of the office on Friday, November 30.

 

SUPPORT AND RESISTANCE

 

December 18   S&P 500

Support    2725.00      Resistance    2744.00

 

December 18   U.S. Dollar Index

Support    96.440        Resistance    96.970

 

December 18   Euro Currency

Support    1.13550      Resistance    1.14210

 

December 18   Japanese Yen

Support    .88030        Resistance    .88550

 

December 18   Canadian Dollar

Support    .75040        Resistance    .75540

 

December 18   Australian Dollar

Support    .7291          Resistance    .7358

 

December 18   Thirty Year Treasury Bonds

Support    139^18       Resistance    140^30

 

December 18   Gold

Support    1217.0        Resistance    1232.0

 

December 18   Copper

Support    2.7700        Resistance    2.8050

 

January 19   Crude Oil

Support    49.33          Resistance    51.88


For more information about these markets, please contact Alan at 312.242.7911  or via email at alan.bush@admis.com. Thank you.

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Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  Research analyst does not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.

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