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Traders Perceive a Less Hawkish FOMC in 2019

by Archer Financial Services | Dec 27, 2018

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

Yesterday’s sharp gains were probably due to the growing belief that the Federal Open Market Committee may not be in a position to hike its fed funds rate in 2019.

In addition, there was late afternoon news that China and the U.S. made plans for face-to-face trade discussions in January, according to the Chinese commerce ministry.

The U.S. government partial shutdown is keeping investors nervous.  President Trump on Tuesday said the partial shutdown of the federal government was going to continue until his demand for funds to build a wall on the U.S.-Mexico border is met.

The number of Americans filing applications for jobless benefits fell slightly last week to near a 49 year low. Initial claims dropped 1,000 to 216,000 for the week ended December 22. Economists had forecast claims to be 217,000 in the latest week.

The 9:00 central time December consumer confidence report is expected to be 134.

It may take a while, but downward pressure on interest rates globally, of course not from the Fed in the short term, will ultimately rescue this market.

It is better to trade other markets where the fundamentals are more lined up in the same direction, as is the case for gold and the thirty year Treasury bond futures.

 

CURRENCY FUTURES

The U.S. dollar is lower, as interest rate differential expectations are turning a bit more against the greenback.

The European Central Bank said the global economy is set to slow down in 2019 and then stabilize, although the central bank still expects prices to rise. The ECB said “Global inflationary pressures are expected to rise slowly as spare capacity diminishes.”

The flight to quality currencies, the Swiss franc and the Japanese yen are higher in light of lower stock index futures.

 

INTEREST RATE MARKET FUTURES

Futures are higher, led by the thirty year Treasury bond futures, as the equity markets lose momentum.

The Treasury will auction seven year notes today.

In spite of the Federal Open Market Committee last week saying it plans to hike its fed funds rate two times next year, the financial futures markets believe the Fed may not be able to hike rates even one time in 2019.

Currently there is only a 24% probability of a 25 basis point rate hike from the FOMC in 2019 from the current rate of 2.25%-2.50% and a 10% chance of a reduction in the fed funds rate by 25 basis points to 2.00%-2.25%.

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

Continue to trade the interest rate futures from the long side.

Gold futures are higher and are closing in on five month highs. Gold is likely to continue to advance in price.

I will be out of the office tomorrow, Friday December 28.

 

SUPPORT AND RESISTANCE

March 19 S&P 500

Support    2418.00      Resistance    2485.00

 

March 19 U.S. Dollar Index

Support    96.050        Resistance    96.530

 

March 19 Euro Currency

Support    1.14270      Resistance    1.15000

 

March 19 Japanese Yen

Support    .90310        Resistance    .90950

 

March 19 Canadian Dollar

Support    .73280        Resistance    .73920

 

March 19 Australian Dollar

Support    .7031          Resistance    .7094

 

March 19 Thirty Year Treasury Bonds

Support    144^12       Resistance    145^26

 

February 19 Gold

Support    1267.0        Resistance    1285.0

 

March 19 Copper

Support    2.6600        Resistance    2.7250

 

February 19 Crude Oil

Support    44.83          Resistance    46.87

 

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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