header_img

Will Fed Chair Powell Be on the Dovish Side?

by Archer Financial Services | Jan 04, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

Stock index futures advanced after China said it will hold a new round of trade talks with the U.S. in Beijing on January 7-8.

Global equity market were supported by news that the People’s Bank of China said it would reduce the amount of cash that banks have to hold as reserves against bad economic times by a total of one percentage point.

The size of the cut was at the upper end of market expectations, and the net funds released would be the largest amount in the five cuts since last January.

The Bureau of Labor Statistics said 312,000 jobs were created in the U.S. in December when economists were expecting to see job gains of 179,000.

While job creation was stronger than expected, the unemployment rate ticked higher to 3.9% when 3.6% was expected.

Hourly average earnings increased .4%, which compares to the estimate of a gain of .3%.

The 8:45 central time Services PMI is estimated to be 53.4.

According to Refinitiv’s IBES, analysts on average are expecting earnings for S&P 500 companies to increase by 15.5% in the fourth quarter, which is better than the 14.8% growth in the year ago quarter. However, the current estimate is lower than the 20% growth that analysts were anticipating in early October.

At 9:15 Federal Reserve Chairman Jerome Powell will participate in a panel that will discuss monetary policy and central banking at the American Economic Association meeting in Atlanta, Georgia.

This is a perfect opportunity for Powell to walk back some of the hawkishness from the December 19 Federal Open Market Committee meeting.

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 higher today, although interest rate differential expectations are turning slightly against the greenback.

Flight to quality longs were liquidated in the Swiss franc and the Japanese yen after China announced new measures to support its economy and hopes that upcoming U.S.-China trade talks would make some progress.

The Canadian economy added a net 9,300 jobs in December. Market expectations were for an increase in employment of 10,000.

Canada's jobless rate was 5.6% in December. Market expectations were for the jobless rate to rise slightly to 5.7%.   

Canada's industrial product price index fell 0.8% in November. Market expectations were for a flat reading in November.

 

INTEREST RATE MARKET FUTURES

Futures are lower in response to the overall stronger than expected U.S. employment data.

Yesterday, Kaplan of the Federal Reserve said the Fed should hold off on its next interest rate hike until the second half of 2019. In addition, Kaplan said the Fed may want to rethink its balance sheet reduction.

Today, Cleveland Federal Reserve President Loretta Mester says the central bank could stop hiking rates this year if inflation doesn’t rise.

In spite of the Federal Open Market Committee, at its December 19 policy meeting saying it plans to hike its fed funds rate two times in 2019, the financial futures markets believe the Fed may not be able to hike rates even one time in 2019.

Financial futures markets are predicting a 65% probability of the fed funds rate remaining unchanged at the current level of 2.25%-2.50% this year and there is a 35% 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 tested the psychological resistance at the $1,300.00 level, before falling back.  

Gold is likely to continue to advance in the longer term.

 

SUPPORT AND RESISTANCE

March 19 S&P 500

Support    2435.00      Resistance    2507.00


March 19 U.S. Dollar Index

Support    95.600        Resistance    96.180

 

March 19 Euro Currency

Support    1.14110      Resistance    1.14980

 

March 19 Japanese Yen

Support    .92550        Resistance    .93600

 

March 19 Canadian Dollar

Support    .74110        Resistance    .74700

 

March 19 Australian Dollar

Support    .7000          Resistance    .7074

 

March 19 Thirty Year Treasury Bonds

Support    147^4         Resistance    148^30

 

February 19 Gold

Support    1277.0        Resistance    1302.0

 

March 19 Copper

Support    2.5650        Resistance    2.6250

 

February 19 Crude Oil

Support    46.45          Resistance    48.98


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

Would you like to open an account with us? Go to our interactive New Account application at Open an Account. It is fast, saves on postage and it’s green.

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.

Offers