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Slightly Better Tone to U.S.-China Trade Situation

by Archer Financial Services | Jun 04, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

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.
 

CURRENCY 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.

 

INTEREST RATE MARKET FUTURES

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.

 

SUPPORT AND RESISTANCE

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 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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