Flight to Quality Vehicles Higher

by Archer Financial Services | May 29, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

U.S. stock index futures are lower, as growing trade tensions between the U.S. and China fanned fears about a global economic slowdown. There are reports that China could be prepared to restrict exports of rare-earth elements in retaliation for U.S. tariffs.

The 9:00 central time May Richmond Federal Reserve manufacturing index is expected to be 6.

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 trade hurdle.

Now is a good time to stand aside on stock index futures and focus on the long side of flight to quality vehicles, especially the thirty year Treasury bond futures.
 

CURRENCY FUTURES

The flight to quality currencies, the U.S. dollar index, the Japanese yen and the Swiss franc are all higher in light U.S.-China trade tensions and fears of slowing global growth.

The euro currency is lower on news that unemployment in Germany rose unexpectedly in May, according to data from the Federal Employment Agency. 

The Australian dollar is steady now, but was lower in the overnight trade after Australia's bond yields hit record lows.

Reserve Bank of Australia Governor Philip Lowe last week said policymakers will discuss an interest rate cut on June 4. Since then, financial futures markets have priced in as many as three cuts in the official cash rate by February to 75 basis points from the current record low 1.50%. 

INTEREST RATE MARKET FUTURES

The thirty year Treasury bond futures made another new high for the move today, advancing to the highest level since January 2018. Fears of a further escalation in trade tensions pressured global equities, which stoked demand for haven assets.

The Treasury will auction seven year notes today.

Financial futures markets are predicting there is a 70% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points or more at its October 30 policy meeting, which compares to 63% yesterday.

I expect the flight to quality vehicles, especially the thirty year Treasury bond futures, to trade higher in this atmosphere of U.S.-China trade uncertainties.

 

SUPPORT AND RESISTANCE

June 19 S&P 500

Support    2779.00      Resistance    2811.00

June 19 U.S. Dollar Index

Support    97.700        Resistance    97.980

June 19 Euro Currency

Support    1.11550      Resistance    1.11970

June 19 Japanese Yen

Support    .91450        Resistance    .91800

June 19 Canadian Dollar

Support    .73920        Resistance    .74320

June 19 Australian Dollar

Support    .6912          Resistance    .6944

June 19 Thirty Year Treasury Bonds

Support    152^0         Resistance     153^8

June 19 Gold

Support    1276.0        Resistance     1289.0

July 19 Copper

Support    2.6550        Resistance     2.7000

July 19 Crude Oil

Support    57.01          Resistance     59.21


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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