By Alan Bush | Senior Financial Economist at ADMIS
U.S. stock index futures are lower, as investors continue to digest the impact of President Donald Trump's threat to impose fresh tariffs on imports from Mexico.
Recently President Trump announced he would place tariffs of 5% on Mexican imports on June 10, which would increase every month up to as high as 25% by October 1, if Mexico failed to stem the flow of immigrants entering the U.S.
Mexican President Andres Manuel Lopez Obrador today reiterated that he believed a deal could be reached between Mexico and the U.S. to resolve the issue.
The 8:45 central time May PMI manufacturing index is expected to be 50.6.
The 9:00 May Institute for Supply Management index is anticipated to be 53 and the 9:00 April construction spending report is estimated to show a .4% increase.
My view remains that the global reflation scenario is on track and easier credit conditions from most of the world’s central banks, including the Federal Reserve, are coming and will be the dominant fundamental that supports stock index futures in the long term.
But, first we need to get past the U.S.-China and now U.S-Mexico trade hurdles.
Now is a good time to stand aside on stock index futures and focus on the long side of flight to quality vehicles, especially the thirty year Treasury bond futures.
Currency traders are focusing their attention on the flight to quality currencies, the Japanese yen and the Swiss franc, which are higher.
The Swiss franc rallied to its highest level in almost two years against the euro currency, as investors move into perceived safe-haven currencies.
The British pound is lower after it was reported that the U.K. manufacturing sector slowed sharply in May. A manufacturing PMI dropped to 49.4 from 53.1 in April.
The Japanese yen and the Swiss franc remain the best longs in the currency sector.
The thirty year Treasury bond futures advanced to another new high for the move and are trading at the highest level since October 2017.
The yield on two-year Treasuries is headed for the biggest two-day decline since January 2008.
Federal Reserve speakers today are St. Louis Federal Reserve Bank President James Bullard at 12:25 and San Francisco Federal Reserve Bank President Mary Daly at 8:45 this evening.
Trade tensions have raised concerns about the economy, leading traders to believe the Federal Reserve will be forced to cut interest rates to boost economic growth.
U.S. money markets are pricing in two interest rate cuts this year.
Financial futures markets are predicting there is a 55% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points or more at its July 31 policy meeting. Another rate cut is likely in December.
I expect the flight to quality vehicles, especially the thirty year Treasury bond futures, to trade higher in this atmosphere of U.S.-China and now U.S.-Mexico trade uncertainties.
June 19 S&P 500
Support 2729.00 Resistance 2762.00
June 19 U.S. Dollar Index
Support 97.410 Resistance 97.750
June 19 Euro Currency
Support 1.11680 Resistance 1.12200
June 19 Japanese Yen
Support .92310 Resistance .92770
June 19 Canadian Dollar
Support .73900 Resistance .74220
June 19 Australian Dollar
Support .6927 Resistance .6973
June 19 Thirty Year Treasury Bonds
Support 154^8 Resistance 155^24
June 19 Gold
Support 1304.0 Resistance 1322.0
July 19 Copper
Support 2.6100 Resistance 2.6700
July 19 Crude Oil
Support 52.03 Resistance 54.78
For more information about these markets, please contact Alan at 312.242.7911 or via email at firstname.lastname@example.org. 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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