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

by Archer Financial Services | Aug 29, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

FLIGHT TO QUALITY VEHICLES

The flight to quality vehicles, the interest rate market futures, especially the 30 year Treasury bond futures, the Japanese yen, gold and silver would logically all trade lower in light of a better tone to the U.S.-China trade situation. However, some of these markets, gold and silver, are trading higher and those that are lower, interest rate market futures and the yen, are well off their lows.

Continue to trade the flight to quality vehicles from the long side.

STOCK INDEX FUTURES

U.S. stock index futures are higher due to renewed hopes for progress in the trade dispute between the U.S. and China. 

China's Commerce Ministry said the U.S. needed to create the necessary conditions for trade negotiations to proceed, while noting that both countries remain in communication over possible new talks next month. 

Initial jobless claims were up 4,000 to 215,000 in the week ended August 24. Economists expected jobless claims to rise to 215,000. 

U.S. economic growth was slightly weaker during the second quarter than previously estimated, but corporate profits rebounded strongly.

The Commerce Department said second quarter gross domestic product increased at a seasonally adjusted annual rate of 2.0%, compared with the previous estimate of a 2.1% gain. Economists estimated the latest revision would show 2.0% growth. 

Corporate profits advanced 4.8% from the prior quarter, which was the largest quarterly rise since the first quarter of 2018. 

The 9:00 central time July pending home sales index is expected to be down .3%.

Now is a good time to stand aside in stock index futures and instead focus on the long side of the flight to quality vehicles, which are the interest rate futures market, especially the 30 year Treasury bond futures, the Japanese yen, gold and silver.
 

CURRENCY FUTURES

The euro currency is lower after a report showed Germany’s inflation rate eased more than expected in August. Consumer prices fell 0.2% on the month. 

The British pound continued to decline, as a “no-deal Brexit” is becoming more likely.

Continue to trade the Japanese yen from the long side due to its perceived status as a flight to quality vehicle.

The main trend for the yen is higher.  

INTEREST RATE MARKET FUTURES

The 30 year Treasury bond futures yesterday advanced to its highest level since November 2016. However, today prices are lower in light of a better tone to the U.S.-China trade situation.  

The Treasury will auction seven-year notes today.

Market participants believe there is a 95% probability that the Federal Open Market Committee will lower its fed funds rate by another 25 basis points at its next meeting on September 17-18. Another rate cut after that is likely before the end of the year.

In the longer term, higher prices are likely for futures, especially at the long end of the curve, as most major central banks, including the Federal Reserve, are likely to embark on a new round of easier credit policies. 

SUPPORT AND RESISTANCE

September 19 S&P 500

Support    2872.00      Resistance    2929.00

September 19 U.S. Dollar Index

Support    98.030        Resistance    98.380

September 19 Euro Currency

Support    1.10600      Resistance    1.11120

September 19 Japanese Yen

Support    .94020        Resistance    .94660

September 19 Canadian Dollar

Support    .75060        Resistance    .75400

September 19 Australian Dollar

Support    .6715          Resistance    .6763

September 19 Thirty Year Treasury Bonds

Support    165^20       Resistance     167^12

December 19 Gold

Support    1539.0        Resistance     1562.0

December 19 Copper

Support    2.5500        Resistance     2.6000

October 19 Crude Oil

Support    55.32          Resistance     56.83




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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