By Alan Bush | Senior Financial Economist at ADMIS
U.S. stock index futures are higher after the Chinese Commerce Ministry took an unexpectedly conciliatory tone when it said it believed trade differences should be “resolved through dialogue.”
In addition, there was support for stock index futures when Mexican Foreign Minister Marcelo Ebrard said he expects to find mutual understanding at talks with U.S. officials over immigration.
Ebrard told reporters Mexican officials are planning to present an immigration proposal to the U.S. on Wednesday, which they hoped could be the starting point for negotiations.
At 8:55 central time Federal Reserve Chairman Jerome Powell will deliver opening remarks at the Conference on Monetary Policy Strategy, Tools and Communication Practices held at the Chicago Federal Reserve Bank in Chicago.
The 9:00 April factory orders report is expected to show a decline of .8%.
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.
In the overnight trade the U.S. dollar weakened to its lowest level since mid-May, as investors bet the Federal Reserve could soon lower interest rates.
After big gains recently in the flight to quality currencies, the Japanese yen and the Swiss franc, prices are lower today.
The euro currency is lower after data showed euro zone inflation eased more than expected in May to its lowest level in over a year. Inflation slowed to 1.2% in May from 1.7% in April, while economists had predicted 1.5% price growth.
The Australian dollar is lower after the Reserve Bank of Australia cut its benchmark interest rate by 25 basis points to 1.25%.
RBA Governor Philip Lowe said the move would increase inflation and reduce unemployment. In addition, Lowe left the door open for further cuts in official interest rates.
Yesterday, the thirty year Treasury bond futures advanced to the highest level since October 2017.
Prices are lower today due to a slightly better tone to the U.S.-China trade situation.
Yesterday, Federal Reserve Bank of St. Louis President James Bullard said lowering the central bank's short-term interest rate target “may be warranted soon.”
He said the Fed "faces an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty." Mr. Bullard said “Both inflation and inflation expectations remain below target, and signals from the Treasury yield curve seem to suggest that the current policy rate setting is inappropriately high.”
In addition to Fed Chair Powell, other Federal Reserve speakers today are Chicago Federal Reserve Bank President Charles Evans at 8:45, Federal Reserve Member of the Board of Governors Lael Brainard at 2:45 this afternoon and Dallas Federal Reserve Bank President Robert Kaplan at 5:45.
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.
Financial futures markets are predicting there is a 53% 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 2741.00 Resistance 2779.00
June 19 U.S. Dollar Index
Support 96.840 Resistance 97.350
June 19 Euro Currency
Support 1.12310 Resistance 1.12970
June 19 Japanese Yen
Support .92350 Resistance .92890
June 19 Canadian Dollar
Support .74250 Resistance .74650
June 19 Australian Dollar
Support .6951 Resistance .7003
June 19 Thirty Year Treasury Bonds
Support 154^8 Resistance 155^24
June 19 Gold
Support 1318.0 Resistance 1333.0
July 19 Copper
Support 2.6350 Resistance 2.6650
July 19 Crude Oil
Support 52.21 Resistance 53.75
For more information about these markets, please contact Alan at 312.242.7911 or via email at email@example.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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