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Trade Flight to Quality Vehicles from the Long Side

by Archer Financial Services | Aug 14, 2019

By Alan Bush | Senior Financial Economist at ADMIS   

STOCK INDEX FUTURES

U.S. stock index futures are under pressure due to poor economic data from China and Germany.

China's economy weakened in July with industrial growth at a 17-year low. The gross domestic product in Germany fell 0.1% compared with the previous quarter, according to the Federal Statistics Office.

This, in addition, 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 overhang the market.    

Mortgage applications in the week ended August 9 increased 21.7%, which compares to the 5.3% increase last week.

Prices for foreign made goods imported to the U.S. increased 0.2% in July from June. Economists had expected a 0.1% decline.  

The 9:00 central time August Atlanta Federal Reserve business inflation expectations report is expected to be 1.9%.

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.

However, in the short term there are better opportunities in trading the long side of the flight to quality vehicles.

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 it was reported that Germany's economy contracted.

German 10 year bund yields hit a record low.

The British pound is a little higher after a report showed U.K. inflation beat expectations at 2.1% year-to-year.

Continue to 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 advanced to their highest levels since November 2016 due to a variety of geopolitical worries, which are causing flight to safety capital flows.

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    2879.00      Resistance    2939.00

September 19 U.S. Dollar Index

Support    97.410        Resistance    97.720

September 19 Euro Currency

Support    1.11840      Resistance    1.12300

September 19 Japanese Yen

Support    .94840        Resistance    .94880

September 19 Canadian Dollar

Support    .75110        Resistance    .75800

September 19 Australian Dollar

Support    .6736          Resistance    .6820

September 19 Thirty Year Treasury Bonds

Support    162^12       Resistance     165^12

October 19 Gold

Support    1497.0        Resistance     1531.0

September 19 Copper

Support    2.5750        Resistance     2.6400

September 19 Crude Oil

Support    54.73          Resistance     56.93




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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