Flight to Quality Vehicles Higher

by Archer Financial Services | May 31, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

U.S. stock index futures are lower as President Donald Trump announced he would place tariffs of 5% on Mexican imports on June 10, which would increase every month up to as high as 25% by October 1, if Mexico failed to stem the flow of immigrants entering the U.S.

There was some pressure on global equity markets on news that China’s factory activity declined more than expected in May. The official manufacturing Purchasing Managers’ Index for May came in at 49.4, which compares to expectations of 49.9.

U.S. personal income in April increased .5% when up .3% was expected and personal consumption expenditures advanced .3%, which compares to the anticipated .2% gain.

The 8:45 central time May Chicago PMI is expected to be 53.6 and the 9:00 May consumer sentiment index is anticipated to be 101.5.

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 and now U.S-Mexico trade hurdles.

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

Currency traders are focusing their attention on the flight to quality currencies, the Japanese yen and the Swiss franc, which are higher.

German inflation slowed more than expected in May. Consumer prices rose 0.2% on the month, which compares to the estimate of a rise of 0.3%.

The Canadian economy expanded modestly in the first quarter, but fell short of market expectations.  Canada's gross domestic product increased at a 0.4% annualized rate in the first quarter of 2019.  Market expectations were for a 0.9% annualized advance.

The U.S. dollar jumped more than 3% against the Mexican peso. 
 

INTEREST RATE MARKET FUTURES

The thirty year Treasury bond futures advanced to another new high for the move and is trading at its highest level since January 2018.

At 11:00 New York Federal Reserve Bank President John Williams will deliver a speech.

Trade tensions have raised concerns about the economy, leading traders to believe the Federal Reserve will be forced to cut rates to boost economic growth.

U.S. money markets are pricing in two interest rate cuts by January 2020.

Financial futures markets are predicting there is a 79% 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 67% 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 and now U.S.-Mexico trade uncertainties.

 

SUPPORT AND RESISTANCE

June 19 S&P 500

Support    2748.00      Resistance    2794.00

June 19 U.S. Dollar Index

Support    97.740        Resistance    98.130

June 19 Euro Currency

Support    1.11350      Resistance    1.11860

June 19 Japanese Yen

Support    .91300        Resistance    .92190

June 19 Canadian Dollar

Support    .73830        Resistance    .74220

June 19 Australian Dollar

Support    .6901          Resistance    .6940

June 19 Thirty Year Treasury Bonds

Support    153^0         Resistance     154^16

June 19 Gold

Support    1284.0        Resistance     1302.0

July 19 Copper

Support    2.6250        Resistance     2.6600

July 19 Crude Oil

Support    54.73          Resistance     56.75


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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