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Lower Interest Rates Coming Globally

by Archer Financial Services | Jun 05, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

U.S. stock index futures extended yesterday’s powerful rally, which was driven by hopes that the Federal Reserve will be lowering interest rates.

Federal Reserve Chairman Jerome Powell yesterday suggested the central bank would reduce borrowing costs if financial conditions showed indications of weakening due to tariff tensions.

Stock index futures pared gains as the May ADP jobs report showed private employers added 27,000 jobs in May, falling far short of economists’ expectations. Economists had forecast the ADP National Employment Report would show a gain of 180,000 jobs.

The 8:45 central time May PMI services index is expected to be 50.9 and the 9:00 May ISM non-manufacturing index is anticipated to be 55.8.

At 1:00 the Federal Reserve will release its “Beige Book” on the economy.

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.
 

CURRENCY FUTURES

The U.S. dollar weakened to a seven week low as a result of increased prospects of lower interest rates from the Federal Reserve and the weak ADP employment change report.

The flight to quality currencies, the Japanese yen and the Swiss franc, advanced to new highs for the move with the Japanese yen hitting a five month high and the Swiss franc reaching a 10 week high.

The euro currency is higher in spite of weaker than expected inflation numbers in the euro zone.

The European Central Bank will meet on Thursday, and there is speculation that the ECB could match the dovishness of the U.S. Federal Reserve.

The British pound is higher on news that U.K. service sector growth improved more than expected to a three month high in May.
 

INTEREST RATE MARKET FUTURES

Federal Reserve speakers today are Federal Reserve Board of Governors Vice Chairman Richard Clarida at 8:45, Atlanta Federal Reserve Bank President Raphael Bostic at 8:45, Federal Reserve Member of the Board of Governors Michele Bowman at 9:00 and Boston Federal Reserve Bank President Eric Rosengren at 12:15.

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 74% 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. Yesterday the probability was 53%. Another rate cut is likely in December.  

In light of this atmosphere of U.S.-China and now U.S.-Mexico trade uncertainties, now is a good time to focus on the long side of the flight to quality vehicles, especially the thirty year Treasury bond futures, but also the Japanese yen, the Swiss franc and gold.


SUPPORT AND RESISTANCE

June 19 S&P 500

Support    2802.00      Resistance    2829.00

June 19 U.S. Dollar Index

Support    96.550        Resistance    97.120

June 19 Euro Currency

Support    1.12550      Resistance    1.13280

June 19 Japanese Yen

Support    .92270        Resistance    .92890

June 19 Canadian Dollar

Support    .74590        Resistance    .74950

June 19 Australian Dollar

Support    .6977          Resistance    .7021

September 19 Thirty Year Treasury Bonds

Support    153^8         Resistance     154^12

August 19 Gold

Support    1326.0        Resistance     1355.0

July 19 Copper

Support    2.6450        Resistance     2.6750

July 19 Crude Oil

Support    52.34          Resistance     53.65


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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