stock index futures

  • the financial futures report

    Historically FOMC minutes have been an afterthought, but in today's climate they are a big deal to futures traders

    The futures markets have been hanging on every word that trickles from the mouths of Federal Reserve members. Even off-handed comments made on their personal time have been moving through the grape vines.

    Today's FOMC minutes didn't offer any surprises. The Fed feels like the U.S. economy is moving in the right direction, which justifies a rate hike. But overseas market turmoil (namely China) has them pressing pause. The market seemed to like what they heard.

    In more bullish equity market news, the Chinese stock market opened for trade today after being closed for an entire week in observance of a national holiday (this is odd to us because it is essentially illegal in the U.S for the stock exchange to be closed more than 3 consecutive days). Once the bell rung, Asian traders bid prices higher to catch up with the global equity market rally that had taken place without them.

  • the financial futures report

    China is playing Trump's game...start the discussion with a bazooka before eventually pulling out the bb gun to negotiate.

    US equity and commodity markets were reeling last night on news of new Chinese tariffs. Not surprisingly, the markets overreacted. China's tariff threats don't go into effect immediately, and there is plenty of time for negotiations to take place. Further, it is important to remember that China imports much more to the US than the US does to China. Thus, an immediate fifty handle collapse in the ES on the news probably wasn't justified. As the day wore on, traders began to realize this and put their money where their mouths were by buying into the dip.

    We saw similar action in the commodity markets, namely soybeans and the meats. We had previously recommended bullish trades in corn, soybean meal, cattle and hogs that caused some stress during today's session but appear to be on the right track. In any case, there is no logical reason to see a market such as live cattle go from being nearly limit down to limit up within the span of hours.

    There is no room for complacency, nor panic, in these markets. The goal should be to stay hedged and grounded.

  • the financial futures report

    For Futures Traders, the Countdown to the Fed is on

    Six days from now we'll finally find out whether or not the Fed believes initiating a rate hike is a good idea. The investment community is polarized by the debate, and it seems the Fed might be too. We are still of the belief that they won't be looking to make any moves until the October or December meeting (most likely December), but either way the impact on the economy will be minimal.

    Even if they raise the overnight borrowing rate a full percentage point over the next year, funds will be historically cheap. With that said, we will likely see a knee jerk reaction to the first rate hike but that doesn't mean the actual value of financial assets have changed. More often than not, equity markets moved higher overall in the early stages of a rate hike campaign.

  • The Fed and triple witching Friday are generally bullish events for the stock market

    Although the CME has mitigated some of the impact of the triple witch with their addition of weekly expiring options, the event still influences the quarterly expirations (March, June, September, and December). The most common course of action is a short squeeze going into expiration. In this particular instance, we are referring to Friday, June 17th. The squeeze higher often extends itself into the time the June contract goes off the board, which will be at 8:30 am Friday morning. Accordingly, those wishing to get bearish this market should look for opportunities late next week.

    Similarly, Fed meetings have generally enticed S&P buyers in the days before the FOMC's interest rate policy announcement. The two-day meeting begins on Tuesday, so we could see some buying early in the week.

  • the financial futures report

    The data is suggesting inflation remains an non-issue

    Yesterday's PPI was reported to be even softener than analysts expectations. The headline figure suggests that prices at the producer level have decreased by .5%, but even the core reading was -.3%, Today's CPI painted a similar picture; the headline was -.2% and the core was .2%. In a nutshell, these reports are telling the markets the Fed isn't forced to take action. They can continue to take their time with the timing of the first rate hike in over 9 years.

    A few months ago we had predicted that the Fed would probably wait until the December meeting to begin raising rates because at that time most people will be enjoying the holidays, rather than drooling over everything the Fed does. We still think that this is a rather high probability. However, the Fed Funds futures market has dwindled the odds of a December rate hike to about 25% (in other words, the market disagrees with us).

    The "market' doesn't value the odds of a hike above 50% until we get into the spring of 2016. This is a dramatic change in stance of that seen a few months ago in which the Fed Funds futures market was suggesting a 50% chance of a rate hike in the October or December meeting.

  • the financial futures report

    The market is pricing in a good payroll number as it reverses pessimism over North Korea

    Late Monday afternoon I was watching a business news station. The panel was discussing the implications of a North Korea missile being fired (they were still trying to confirm the rumor that it had occurred). There was talk of a limit down opening to the E-mini S&P (the news broke during the daily afternoon pause of trading). They were right about sharp selling on the open but the bearish tone was quickly forgotten by tax reform talk. Even a 500-year flood couldn't deter the fiscal policy bulls. By Thursday's close all of this week's bearish headlines had been forgotten.

  • the financial futures report

    Crude oil futures are driving the bus

    Unfortunately for anyone holding stocks in their retirement portfolio, or anybody playing the long side of the e-mini S&P in the future market, stocks aren't trading on their own fundamentals. The broad market is simply following crude oil lower, and occasionally temporarily higher.

    It is important to remember the last time crude oil traded near $30, the S&P 500 was near 1,100, and the world was concerned we would no longer have a functioning banking system. This time around, we are in a much different situation. Unless I'm missing something, it is far less dire (unless you are long commodities). Nevertheless, something has to come back into line. Either oil, and the other beaten down commodities need to make a move higher, or stocks need to move lower.

    In recent days we've been "blessed" with some rather bold analyst calls in the commodity space. Some large and relatively well respected banks and analysts are calling for oil to fall to 20s per barrel, and in one instance expectations are for $10 crude oil!!! Perhaps these prediction will be accurate, but we have serious doubts. It smells a little like the widespread analyst expectations for $200 crude oil in 2008 when $150 crude oil was considered "cheap".

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