Interest Rate Market Futures Overreacting on the Upside for the First Time in a While

October 22, 2019

STOCK INDEX FUTURES

U.S. stock index futures are higher. Recent strength has been linked to surprisingly better than expected third quarter corporate earnings reports in spite of the slowing global economy. Of the 75 companies in the S&P 500 reporting results by Monday, over 80% of them had surpassed analysts estimates.

This is the busiest week of the quarter for corporate earnings reports.

Two 9:00 central time reports are scheduled. September existing home sales are expected to be 5.445 million and the October Richmond Federal Reserve manufacturing index is anticipated to be negative 9.

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

The U.S. dollar strengthened against its major counterparts, as traders were encouraged by signs of progress in the U.S.-China trade talks.

President Donald Trump yesterday said China had already begun promised purchases of farm products and the first part of a larger commitment was almost complete.

U.S. Trade Representative Robert Lighthizer said efforts to commit the agreement to paper ahead of the Asia-Pacific Economic Cooperation summit in Chile next month are on track although some work remains.

In addition, President Trump's economics adviser Larry Kudlow indicated tariffs scheduled to take place in December could be cancelled if the trade talks go well.

The Canadian dollar is lower after Statistics Canada saidretail salesin Canada contracted by 0.1% on a monthly basis in August following July's increase of 0.6% and was short of the market expectation of up 0.4%.

INTEREST RATE MARKET FUTURES

Futures are higher on limited news and appear to be overreacting on the upside for the first time in a while. Follow-through gains are likely.

Dallas Federal Reserve Bank PresidentRobert Kaplanwill moderate a conversation with the Bank of International Settlements General Manager Agustin Carstens at the Dallas Fed's Technology Enabled Disruption: Implications for Business, Labor Markets and Monetary Policy conference in Dallas, Texas at 12:00.

The Treasury will auction two year notes.

Market participants believe there is a 93% 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 91%.

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.

SUPPORT AND RESISTANCE

December 19S&P 500

Support 3000.00 Resistance 3020.00

December 19 U.S. Dollar Index

Support 96.950 Resistance 97.320

December 19Euro Currency

Support 1.11560 Resistance 1.12000

December 19Japanese Yen

Support .92250 Resistance .92550

December 19Canadian Dollar

Support .76120 Resistance .76600

December 19Australian Dollar

Support .6854 Resistance .6898

December 19 Thirty Year Treasury Bonds

Support 159^0 Resistance 160^10

December 19Gold

Support 1482.0 Resistance 1496.0

December 19Copper

Support 2.6250 Resistance 2.6600

December 19 Crude Oil

Support 53.03 Resistance 54.65

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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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 Archer Daniels Midland Company. 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.