U.S.-China Trade Talks Optimism Supports Stock Index Futures and Pressures Treasury Futures

January 23, 2019

STOCK INDEX FUTURES

Stock index futures declined yesterday due to a report that Washington had rejected an offer from Beijing for preparatory trade talks this week ahead of high level negotiations that are scheduled for next week.

Chinas Vice Premier will visit the U.S. on January 30-31.

The 9:00 central time January Richmond Federal Reserve manufacturing index is expected to be negative 3.

CURRENCY FUTURES

The U.S. dollar is a little higher and the euro currency remains near a three week low.

The British pound is higher in spite of news that the U.K. manufacturing outlook fell to its lowest level since the Brexit vote.

The Japanese yen is lower after the Bank of Japan cut its inflation forecasts. BoJ Governor Kuroda warned of growing risks to the economy from trade protectionism and declining global demand.

The BoJ governor said the central bank won't raise interest rates before inflation reaches 2%.

Higher crude oil prices supported the commodity currencies, the Canadian dollar and the Australian dollar.

INTEREST RATE MARKET FUTURES

Futures are under selling pressure, as flight to quality longs are liquidated in light of renewed optimism over the U.S.-China trade talks and higher stock index futures.

Financial futures markets are predicting a 66% probability of the fed funds rate remaining unchanged at the current level of 2.25%-2.50% this year.

There is a 29% chance of an increase in the fed funds rate by 25 basis points, and there is a 5% probability of a 25 basis point rate cut in 2019.

The yield curve has recently become less inverted, which could be a sign that the market is anticipating progress will be made in resolving the U.S.-China trade dispute.

Futures may work lower in advance of the U.S.-China trade talks.

SUPPORT AND RESISTANCE

March 19S&P 500

Support 2623.00 Resistance 2655.00

March 19 U.S. Dollar Index

Support 95.830 Resistance 96.110

March 19Euro Currency

Support 1.13980 Resistance 1.14330

March 19Japanese Yen

Support .91210 Resistance .91900

March 19Canadian Dollar

Support .74900 Resistance .75330

March 19Australian Dollar

Support .7121 Resistance .7155

March 19 Thirty Year Treasury Bonds

Support 144^10 Resistance 145^12

February 19Gold

Support 1274.0Resistance 1287.0

March 19Copper

Support 2.6500 Resistance 2.6800

March 19 Crude Oil

Support 52.51 Resistance 53.77

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