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Stock Index Futures Soar on U.S.-China Trade Truce

by Archer Financial Services | Dec 03, 2018

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

Stock index futures surged on news that Washington and Beijing agreed to a 90 day trade ceasefire during the G-20 summit in Argentina on Saturday and President Donald Trump said China has agreed to “reduce and remove” tariffs below the 40% level that the country is currently charging on vehicles made in the U.S.

However, the White House also said that the existing 10% tariffs on $200 billion worth of Chinese products would be increased to 25% if no agreement was reached within 90 days.

The 8:45 central time November Markit Manufacturing PMI is expected to be 55.4.

There are two 9:00 reports. The November Institute for Supply Management manufacturing index is anticipated to be 57.2 and the October construction spending report is estimated to show a .4% increase.

A less hawkish FOMC and now the apparent progress in the U.S.-China trade talks have long term bullish implications for stock index futures.

 

CURRENCY FUTURES

Flight to quality longs were liquidated in the U.S. dollar in light of the weekend news of a 90 day ceasefire in the U.S.-China trade war.

Also, a less hawkish Federal Reserve is likely to put a cap on the rally in the greenback.

The euro currency is a little higher on limited economic news.

The euro is stronger even though 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% in early November.

The British pound is lower after a trade association said British manufacturers are heading into their slowest year of growth since 2015, as Brexit uncertainties reduce foreign demand and businesses prepare for potential shortages of raw materials.

The Australian dollar led the rally against the U.S. dollar after the Washington and Beijing deal for a ceasefire in their trade war, which encouraged investors to sell the greenback and buy riskier assets.

   

INTEREST RATE MARKET FUTURES

Flight to quality longs were liquidated after the U.S. and China declared a temporary trade truce.

Federal Reserve speakers today Federal Reserve member of the Board of Governors Lael Brainard at 9:30 and Dallas Federal Reserve Bank President Robert Kaplan at 12:00.

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 85%, which compares to 83% last week.

In light of Federal Reserve Chairman Powell’s dovish comments last week, it now appears that the FOMC will increase its fed funds rate one or possibly two times in 2019.

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

 

SUPPORT AND RESISTANCE

December 18   S&P 500

Support    2791.00      Resistance    2817.00

 

December 18   U.S. Dollar Index

Support    96.540        Resistance    97.120

 

December 18   Euro Currency

Support    1.13240      Resistance    1.1403

 

December 18   Japanese Yen

Support    .87830        Resistance    .88370

 

December 18   Canadian Dollar

Support    .75330        Resistance    .76110

 

December 18   Australian Dollar

Support    .7345          Resistance    .7404

 

December 18   Thirty Year Treasury Bonds

Support    140^0         Resistance    140^24

 

December 18   Gold

Support    1219.0        Resistance    1237.0

 

December 18   Copper

Support    2.7900        Resistance    2.8550

 

January 19   Crude Oil

Support    51.95          Resistance    54.03


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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