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A Less Hawkish FOMC Helps Gold

by Archer Financial Services | Dec 07, 2018

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

Stock index futures recovered most of its earlier losses yesterday due to a report that the Federal Open Market Committee will scale back its interest rate hike schedule next year.

Nonfarm payrolls increased 155,000 in November when economists forecast payrolls increasing by 200,000.

Revised figures showed employers added 237,000 jobs in October and 119,000 in September for a net downward revision of 12,000.

The unemployment rate was unchanged at 3.7%, as expected, matching the lowest rate since December 1969.

Average hourly earnings increased six cents, or 0.2% in November after gaining 0.1% in October.

The average workweek fell to 34.4 hours from 34.5 hours in October.    

The 2:00 central time October consumer credit report is estimated to show a $15.3 billion increase.

It will may take a while, but a less hawkish Federal Reserve and downward pressure on interest rates globally will ultimately rescue this market.

 

CURRENCY FUTURES

The U.S. dollar is lower in response to the on-balance weaker than expected U.S. employment numbers.

The greenback weakened recently as traders assess the impact of falling U.S. interest rates. A less hawkish Federal Reserve is likely to put a cap on the greenback.

The Canadian dollar and the Australian dollar advanced due to sharply higher crude oil prices.

The Canadian dollar was also supported by news that Canadian job growth soared in November, surpassing market expectations by a wide margin. Gains in full-time hiring helped push the unemployment rate to its lowest rate in over 40 years.

The Canadian economy added a net 94,100 jobs in November, which compares to market expectations of an increase in employment of 10,000.

Canada's jobless rate fell to 5.6% in November, which is down from 5.8% in the previous month and the lowest level since 1976. Market expectations were for Canada's unemployment rate to remain at 5.8%. 

 

INTEREST RATE MARKET FUTURES

The thirty year Treasury bond futures advanced yesterday to a 13 week high.

However, prices are lower today as flight to quality longs are liquidated in light of higher stock index futures.

Federal Reserve member of the Board of Governors Lael Brainard will speak about current financial stability issues at 11:15.

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, which would be the fourth this year, is 81%. This compares to 71% yesterday.

I am with the crowd on this one and believe the Fed will hike this month. However, I am anticipating the accompanying statement will be dovish, paving the way for a less aggressive rate hike schedule from the Fed in 2019.

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

Also, the gold market is likely to be a beneficiary of a less hawkish Federal Reserve.

 

SUPPORT AND RESISTANCE

December 18   S&P 500

Support    2665.00      Resistance    2720.00

 

December 18   U.S. Dollar Index

Support    96.410        Resistance    96.970

 

December 18   Euro Currency

Support    1.13610      Resistance    1.14170

 

December 18   Japanese Yen

Support    .88550        Resistance    .88890

 

December 18   Canadian Dollar

Support    .74590        Resistance    .75450

 

December 18   Australian Dollar

Support    .7200          Resistance    .7255

 

March 19 Thirty Year Treasury Bonds

Support    142^4         Resistance    143^16

 

February 19   Gold

Support    1239.0        Resistance    1257.0

 

March 19   Copper

Support    2.7400        Resistance    2.7800

 

January 19   Crude Oil

Support    50.45          Resistance    54.37


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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