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U.S.-China Trade Talks in October

by Archer Financial Services | Sep 05, 2019

By Alan Bush | Senior Financial Economist at ADMIS   


STOCK INDEX FUTURES

U.S. stock index futures are higher after China’s Commerce Ministry said its trade team will hold talks with its U.S. counterparts in mid-September in preparation for high level negotiations in the first part of October.

The talks were agreed to in a phone conversation between Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin, according to China’s commerce ministry.

The August Automatic Data Processing employment change report showed the nation’s businesses created 195,000 private-sector jobs in August, which compares to the estimate of a gain of 150,000. The August number was above the highest analyst estimate.

Initial weekly U.S. jobless claims increased 1,000 to 217,000 in the week ended August 31. Consensus expectations had called for initial claims to be 215,000.

The 8:45 central time August PMI services index is expected to be 50.9.

There are two 9:00 reports. The July factory orders report is anticipated to show a 1.0% increase and the August Institute for Supply Management non-manufacturing index is estimated to be 54.

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 U.S. dollar index is lower in spite of the bullish Automatic Data Processing employment change report.

The euro currency is higher despite news that Germany's factory orders decreased by the most in five months in July. Factory orders fell 2.7% when economists had forecast orders to drop 1.4%.

INTEREST RATE MARKET FUTURES

Futures are lower across the board as flight to quality vehicles are liquidated in light of a more optimistic outlook for progress in the U.S.-China trade talks.

Yesterday’s release of the Federal Reserve’s Beige Book, which is produced approximately two weeks before the monetary policy meetings of the Federal Open Market Committee, showed most U.S. businesses remain optimistic about their prospects in spite of concerns about tariffs and trade policy, as the U.S. economy continues to grow. 

On Friday, Federal Reserve Chairman Jerome Powell will deliver a speech entitled “Economic Outlook and Monetary Policy” at the University of Zurich in Zurich, Switzerland at 11:30 AM.

Market participants believe there is almost a 100% 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. 

FLIGHT TO QUALITY VEHICLES

All of the safe haven vehicles are lower in light of the overnight news of planned U.S.-China trade talks later this month and in October. I expect prices will at least partially recover this afternoon from the morning lows for the interest rate futures market, gold, silver and the Japanese yen.

SUPPORT AND RESISTANCE

September 19 S&P 500

Support    2933.00      Resistance    2974.00

September 19 U.S. Dollar Index

Support    98.030        Resistance    98.580

September 19 Euro Currency

Support    1.10150      Resistance    1.10880

September 19 Japanese Yen

Support    .93510        Resistance    .94170

September 19 Canadian Dollar

Support    .75500        Resistance    .75890

September 19 Australian Dollar

Support    .6790          Resistance    .6834

December 19 Thirty Year Treasury Bonds

Support    164^8         Resistance     165^28

December 19 Gold

Support    1536.0        Resistance     1562.0

December 19 Copper

Support    2.5850        Resistance     2.6500

October 19 Crude Oil

Support    55.75          Resistance     57.21

 



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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