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Flight to Quality Vehicles Higher

by Archer Financial Services | Jun 06, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

U.S. stock index futures are higher for a third day, driven by hopes that the Federal Reserve will be cutting interest rates.

Prices are higher even though President Donald Trump threatened to hit China with additional tariffs of “at least” $300 billion worth of Chinese goods, although he said he believed China and Mexico want to make deals in their trade disputes with the U.S.

Initial claims were 218,000 in the week ended June 1 when economists had forecast claims would be unchanged at 215,000.

U.S. unit labor costs were weaker than initially reported in the first quarter, suggesting inflation could remain subdued for a while.

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 U.S-Mexico trade hurdles.

CURRENCY FUTURES

The U.S. dollar is lower and is near a seven week low as a result of increased prospects of lower interest rates from the Federal Reserve.

The flight to quality currencies, the Japanese yen and the Swiss franc are higher.

The euro currency is higher after the European Central Bank left interest rates unchanged and offered no hint of a future cut. There was speculation that the ECB could match the dovishness of the U.S. Federal Reserve.

In a statement today, the ECB said the interest rate on the main refinancing operations and the rates on the marginal lending facility and deposit facility will remain at 0.00%, 0.25% and minus 0.40%, respectively.

The Canadian dollar is higher after it was reported that Canada's trade deficit with the rest of the world narrowed in April to its lowest level in six months. 

INTEREST RATE MARKET FUTURES

New York Federal Reserve Bank President John Williams will speak at 12:00.

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, which is unchanged from yesterday. Another rate cut is likely in December. 

In light of this atmosphere of U.S.-China and 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.

I will be out of the office tomorrow, June 7.
 

SUPPORT AND RESISTANCE

June 19 S&P 500

Support    2808.00      Resistance    2844.00

June 19 U.S. Dollar Index

Support    96.650        Resistance    97.430

June 19 Euro Currency

Support    1.12020      Resistance    1.13250

June 19 Japanese Yen

Support    .92270        Resistance    .92720

June 19 Canadian Dollar

Support    .74430        Resistance    .74830

June 19 Australian Dollar

Support    .6961          Resistance    .7003

September 19 Thirty Year Treasury Bonds

Support    153^0         Resistance     154^12

August 19 Gold

Support    1327.0        Resistance     1350.0

July 19 Copper

Support    2.6200        Resistance     2.6600

July 19 Crude Oil

Support    51.11          Resistance     52.35


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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