Flight to Quality Vehicles Lower Today, but Likely to Rally Next Week

October 11, 2019

STOCK INDEX FUTURES

U.S. stock index futures are higher, as hopes grow for a partial trade deal and a possible delay in scheduled U.S. tariff increases. Negotiators from the U.S. and China meet for a second day of talks today. There are reports that Beijing will offer to eliminate forced joint ventures by January 2020.

President Donald Trump said trade talks between the U.S. and Chinese officials on Thursday went well.

Prices for foreign-made goods imported to the U.S. increased 0.2% in September from August, when economists had expected prices to remain unchanged.

The 9:00 central time October consumer sentiment index is expected to be 92.

My view remains that the global reflation scenario is on track and easier credit conditions from most of the worlds 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

Flight to quality longs are being liquidated today, including the U.S. dollar in light of a better tone to the U.S.-China trade situation.

In the longer term, the U.S. dollar is likely to trend higher against other major currencies, since interest rate differential expectations remain slightly bullish for the greenback.

The British pound is higher following signs of progress in the Brexit talks.

The Canadian dollar and the Australian dollar, the commodity currencies, are higher due to stronger crude oil prices. Oil prices jumped after an Iranian tanker was damaged in a possible missile attack.

There was additional support for the Canadian dollar after a report showed Canada's labor market posted a strong advance in September. The Canadian economy added 53,700 jobs in September when market expectations were for a 10,000 job gain. The unemployment rate unexpectedly fell to 5.5% when 5.7% was estimated.

There was additional support for the Australian dollar on apparent progress in the U.S.-China trade talks.

INTEREST RATE MARKET FUTURES

Minneapolis Federal Reserve president Neel Kashkari today said he remains on board with the idea that cheaper borrowing costs are warranted.

Federal Reserve speakers today are Boston Federal Reserve Bank PresidentEric Rosengrenat 12:15 and Dallas Federal Reserve Bank PresidentRobert Kaplan at 2:00.

Market participants believe there is a 68% probability that the Federal Open Market Committee will lower its fed funds rate by another 25 basis points at the October 30 policy meeting. Yesterday the probability was 87%.

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 under pressure to become more accommodative.

All of the flight to quality vehicles, the interest rate futures market, the U.S. dollar, gold and silver, that have been pressured by the apparent progress in the U.S.-China trade talks most likely will advance next week when this round of trade talks are over and traders start to look again at the coming easier global central bank credit policies.

SUPPORT AND RESISTANCE

December 19S&P 500

Support 2937.00 Resistance 2979.00

December 19 U.S. Dollar Index

Support 97.860 Resistance 98.500

December 19Euro Currency

Support 1.10410 Resistance 1.11200

December 19Japanese Yen

Support .92470 Resistance .93170

December 19Canadian Dollar

Support .75180 Resistance .75830

December 19Australian Dollar

Support .6762 Resistance .6824

December 19 Thirty Year Treasury Bonds

Support 161^0 Resistance 162^20

December 19Gold

Support 1481.0 Resistance 1511.0

December 19Copper

Support 2.6000 Resistance 2.6350

November 19 Crude Oil

Support 53.34 Resistance 55.00

Contact Alan for more extensive information on these markets at 312.242.7911 or via email at alan.bush@admis.com. Thank you.


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