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New Round of Central Bank Easing Coming

by Archer Financial Services | Jun 18, 2019

By Alan Bush | Senior Financial Economist at ADMIS   
 

STOCK INDEX FUTURES

U.S. stock index futures advanced in recent weeks due to the belief that new global easing cycle is about to begin in light of a weakening global economic outlook.

Today’s gains are due to comments from European Central Bank President Mario Draghi when he indicated the possibility that the central bank will embark on a new round of interest rate cuts or asset purchases.

Mr. Draghi, speaking at the ECB's annual conference in Portugal, said the bank still has room to buy more bonds and additional interest rate cuts remain a possibility.      

U.S. housing starts in May were 1.269 million, which compares to expectations of 1.239 million and residential building permits were 1.294 million when 1.290 million were anticipated.

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.
 

CURRENCY FUTURES

The euro currency declined as a result of Mario Draghi’s dovish policy comments. Draghi said the euro region will need additional stimulus if the economic outlook doesn’t improve.

Financial futures markets are now bringing forward pricing for a 10 basis point rate cut by September.

The yield on 10 year German bunds fell to a record low of minus 0.305%.

Germany's economic confidence substantially weakened to a seven-month low in June.

The Bank of Japan and the Bank of England will hold policy meetings on Thursday. No changes are expected from either meeting.   

The Canadian dollar is lower after Canada's factory sector unexpectedly declined in April. Manufacturing sales fell 0.6% in April from the previous month. The expectation was for a 0.6% increase.  
 

INTEREST RATE MARKET FUTURES

The 30 year Treasury bond futures advanced to new highs for the move and are at the highest level since October 2017.

Traders continue to believe the Federal Reserve will be forced to cut interest rates to boost economic growth.

The probability of a fed funds rate reduction from the Federal Open Market Committee at the conclusion of the two-day policy meeting on Wednesday is 29%

The central bank is expected to signal the possibility of an interest rate reduction later this year.

Financial futures markets are predicting there is an 89% 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 85%. Another rate cut is likely later this year. 

Higher prices are likely for the interest rate futures market in light of a coming new round of central bank easing of credit. 
 

SUPPORT AND RESISTANCE

September 19 S&P 500

Support    2887.00      Resistance    2921.00

September 19 U.S. Dollar Index

Support    96.790        Resistance    97.310

September 19 Euro Currency

Support    1.12550      Resistance    1.13280

September 19 Japanese Yen

Support    .92660        Resistance    .93110

September 19 Canadian Dollar

Support    .74510        Resistance    .74620

September 19 Australian Dollar

Support    .6842          Resistance    .6882

September 19 Thirty Year Treasury Bonds

Support    154^10       Resistance     156^0

August 19 Gold

Support    1339.0        Resistance     1362.0

July 19 Copper

Support    2.6400        Resistance     2.6900

July 19 Crude Oil

Support    51.33          Resistance     53.03


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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