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Flight to Quality Buying Resumes

by Archer Financial Services | Mar 11, 2020

By Alan Bush | Senior Financial Economist at ADMIS   

 

STOCK INDEX FUTURES

Stock index futures are sharply lower due to the coronavirus and the lack of consensus on President Trump’s fiscal stimulus plan in Congress. 

The consumer price index increased 0.1% in February from the previous month, which was as expected and the consumer price index, excluding food and energy categories, increased 0.2%, as anticipated.

The March Atlanta Federal Reserve business inflation expectations report will be released at 9:00 central time. Last month, inflations expectations were 1.7%.

While traders focus on the negative bearish influence of the coronavirus, and rightly so, it will be the bullish impact of substantially easier credit from the world’s central banks that will dominate in the long term.

CURRENCY FUTURES

The European Central Bank is expected to ease policy at its meeting tomorrow, as authorities take measures to shield economic growth from the impact of the coronavirus.

The Bank of England cut its benchmark interest rate today in a move aimed at reducing the negative impact of the coronavirus on the U.K. economy.  Officials agreed to cut the BoE's benchmark interest rate by 50 basis points to 25 basis points from 75 basis points. The BOE last cut its key interest rate in August 2016.

The BoE made its move just over a week after the Federal Reserve lowered its key interest rate.
In addition to a reduction in its key lending rate, the BoE's measures included a new facility to encourage banks to lend as much as GBP100 billion ($129 billion) to small businesses, along with and a reduction in capital requirements.     

The Bank of Japan is likely to ease its monetary policy at its March 18-19 meeting.

The fourth quarter capacity utilization rate in Canada was 81.2% when 81.1% was estimated.

INTEREST RATE MARKET FUTURES

Flight to quality buying is coming into the interest rate futures markets.

The Treasury will auction ten-year notes today.

Based on financial futures markets, there is virtually a 91% probability of a 75 basis point cut in the fed funds rate to 25 to 50 basis points and a 9% probability of a 100 basis point cut to zero to 25 basis points at the March 18 Federal Open Market Committee meeting.

GOLD FUTURES

The most important fundamentals we have today are the tailwinds that are capable of sustaining a long-term bull market in gold futures. The flow of funds into gold may just be getting started.

The price of gold has already advanced 11% this year and could be on its way to testing its record high of just under $1918 that was set in 2011.

SUPPORT AND RESISTANCE

March 20 S&P 500

Support    2757.00      Resistance    2881.00

June 20 U.S. Dollar Index

Support    95.750        Resistance    96.320

June 20 Euro Currency

Support    1.13250      Resistance    1.14150

June 20 Japanese Yen

Support    .95130        Resistance    .96470

June 20 Canadian Dollar

Support    .72630        Resistance    .73140

June 20 Australian Dollar

Support    .6478          Resistance    .6544

June March 20 Thirty Year Treasury Bonds

Support    178^16       Resistance     182^24

April 20 Gold

Support    1647.0        Resistance     1673.0

April 20 Crude Oil

Support    32.60           Resistance     36.42

May 20 Copper

Support    2.4950        Resistance     2.5450



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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