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Flight to Quality Flows Push 30 Year Treasury Bond Futures to New Highs

by Archer Financial Services | Aug 05, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

U.S. stock index futures are sharply lower as the U.S.-China trade battle intensifies. Equity markets across Europe and Asia fell, as the Chinese yuan depreciated beyond the psychologically important 7-per-1 dollar level. China's central bank said the yuan's decline was a result of trade protectionism and higher tariffs placed on Chinese goods. 

The 8:45 central time July PMI services index is expected to be 52.2 and the 9:00 July Institute for Supply Management survey is anticipated to be 55.5.

In the next few weeks there will be calls for easier credit conditions from the Federal Reserve, which will place a bottom on this market.

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 Chinese yuan devaluation pressured the U.S. dollar index on the belief that there could be pressure from the Trump administration to lower the U.S. dollar. In addition, there will be ramped-up pressure on the Fed to cut interest rates.

The flight to quality currencies, the Swiss franc and the Japanese yen are higher.

The British pound firmed as a result of the upbeat U.K. Services PMI. The U.K. Services PMI for July came in at above expectations at 51.4 points, reflecting growth.

INTEREST RATE MARKET FUTURES

Futures are sharply higher due to flight to quality flows in light of the increased trade tensions between the U.S. and China.

The thirty year Treasury bond futures continued to advance today and are at their highest level since November 2016.

Financial futures markets are predicting 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 in September.

Federal Reserve Member of the Board of Governors Lael Brainard will speak at 12:30.

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    2865.00      Resistance    2935.00

September 19 U.S. Dollar Index

Support    97.310        Resistance    97.960

September 19 Euro Currency

Support    1.11360      Resistance    1.12310

September 19 Japanese Yen

Support    .94000        Resistance    .94880

September 19 Canadian Dollar

Support    .75510        Resistance    .76000

September 19 Australian Dollar

Support    .6750          Resistance    .6816

September 19 Thirty Year Treasury Bonds

Support    158^16       Resistance     160^28

August 19 Gold

Support    1438.0        Resistance     1476.0

September 19 Copper

Support    2.5300        Resistance     2.5800

September 19 Crude Oil

Support    54.03          Resistance     55.55



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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