Written Commentary
STOCK INDEX FUTURES
U.S. stock index futures are sharply higher on limited news.
The 9:00 September factory orders report is expected to show a 0.6% increase.
Increased volatility, in light of the uncertainties of the election, is a good reason to reduce trading size or stand aside.
Once the political uncertainties are reduced, it will be the globally low interest rate environment that will once again dominate.
CURRENCY FUTURES
Much of the recent trade was evening up, as investors remain cautious ahead of the U.S. presidential election. However, today there appears to be flight to quality long liquidation in the U.S. dollar.
The euro currency is higher. There is the ongoing belief that the European Central Bank will deliver more stimulus when it meets in December, after ECB President Christine Lagarde last week said the fourth quarter GDP is almost certain to be weak.
The British pound is higher on hopes for some kind of free trade deal between the U.K. and the E.U. this month, as talks continue in Brussels and after European Commission President Ursula von der Leyen said last week that negotiations were making good progress.
The Bank of England will meet Thursday. There are expectations that it will increase its asset buying program. In a survey last week, analysts predicted the BoE will increase its quantitative easing by 100 billion pounds to 845 billion pounds. That is almost double the level at the start of this year.
The Japanese yen advanced on news that preliminary estimates showed Japan’s real gross domestic product for the July to September period increased at an annual rate of 18.4% from the previous quarter.
The Canadian dollar and the Australian dollar are higher in light of stronger crude oil prices.
In addition, the Canadian dollar was supported by news that the latest PMI figures showed Canada’s factory activity grew for the fourth consecutive month in October as output increased at the fastest rate in more than two years.
The Reserve Bank of Australia lowered its cash rate to an all-time low of 0.1% from 0.25% at its November meeting, as widely expected. Policymakers said they would purchase A$100 billion of government bonds with maturities of around five to 10 years over the next six months, with the first auction scheduled for Thursday. The RBA also cut its target for three-year bond yields to 0.1%, from 0.25%.
INTEREST RATE MARKET FUTURES
Sharp declines last week for futures at the mid to longer end of the yield curve centered on news of a poorly received seven-year note auction.
Recently, we have not seen any significant safe-haven buying coming into the interest rate futures markets.
Interest rate market futures at the short end of the curve are likely to be supported by ideas that major central banks, including the Federal Reserve, will keep short term interest rates low for an extended period. Many analysts believe it will be several years before the Federal Reserve will be in a position to hike its fed funds rate.
However, futures at the long end of the curve, especially the 30-year Treasury bond futures may be undermined by the inflationary aspects of the Federal Reserve’s “average inflation targeting” policy.
Financial futures markets are predicting there is 98.8% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at the November 4-5 policy meeting.
Political markets are the most difficult to trade, which is a reason to reduce trading size.
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 information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. 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.
