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Trade the Flight to Quality Vehicles from the Long Side

by Archer Financial Services | Aug 13, 2019

By Alan Bush | Senior Financial Economist at ADMIS   


STOCK INDEX FUTURES

U.S. stock index futures are under pressure due to a variety of geopolitical issues, including trade war fears, Hong Kong protests, political turmoil in Italy, elections in Argentina and global economic growth worries.

The National Federation of Independent Business small business optimism index recovered in July to 104.7 from June's sharp downtick to 103.3.  The median estimate called for 103.0.

The U.S. consumer price index increased a seasonally adjusted 0.3% last month from June. Economists had expected prices to rise 0.2% on the month.   The core consumer price index, which excludes the volatile food and energy categories, was up 0.3% in July from June. Economists forecast a 0.2% gain.

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

In light of ongoing geopolitical worries, the flight to quality currencies, the Japanese yen and the Swiss franc are higher.

The euro currency is lower after a report showed the German ZEW economic sentiment survey plunged to -44.1 points in August, which compares to expectations of -28.5.

The German 10 year bund yields hit a record low.

The British pound is a little higher after a report showed wages in the U.K. increased in the second quarter at their fastest pace after inflation for four years.   

Trade the flight to quality currencies, the Japanese yen and the Swiss franc, from the long side.

INTEREST RATE MARKET FUTURES

The 30 year Treasury bond futures are higher due to a variety of geopolitical worries, which are causing flight to safety capital flows.

Policymakers voted to lower the fed funds rate by a quarter percentage point on July 31. 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 very 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. 

Continue to trade the interest rate market futures from the long side, especially the 30 year Treasury bond futures.

SUPPORT AND RESISTANCE

September 19 S&P 500

Support    2860.00      Resistance    2893.00

September 19 U.S. Dollar Index

Support    97.040        Resistance    97.500

September 19 Euro Currency

Support    1.12020      Resistance    1.12620

September 19 Japanese Yen

Support    .94900        Resistance    .95500

September 19 Canadian Dollar

Support    .75210        Resistance    .75640

September 19 Australian Dollar

Support    .6747          Resistance    .6788

September 19 Thirty Year Treasury Bonds

Support    163^0         Resistance     164^4

October 19 Gold

Support    1511.0        Resistance     1542.0

September 19 Copper

Support    2.5650        Resistance     2.6100

September 19 Crude Oil

Support    54.13          Resistance     55.34




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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