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STOCK INDEX FUTURES, TRADE TENSIONS AND


CENTRAL BANKS After making record highs this year, U.S. stock index futures have suddenly taken a turn to the downside.


This appears to be almost entirely as a result of the rising global trade tensions, especially between the U.S. and China, which has recently deteriorated further, and has been seemingly dragging on forever. Hopes for a trade resolution deteriorated when President Donald Trump ordered the imposition of 10% tariffs on China’s remaining $300 billion of imports that would be imposed starting September 1.


China answered President Trump’s latest tariffs by allowing its tightly controlled currency to slide to an 11-year low, which threatens to turn the U.S.-China trade conflict into an international economic contagion. The Chinese currency fell below the 7 yuan-per-U.S. dollar floor that had not been broken since 2008. The People’s Bank of China downplayed the importance of the milestone, but linked the rate decline to the dispute with Washington. The People’s Bank of China attempted to minimize the impact when it issued a statement saying it is not a currency manipulator and told foreign companies that the yuan will not keep falling.


Chart 1: S&P 500 Futures - Monthly


Also, there are simmering trade issues between the U.S. and the European Union. The E.U. says it is ready to discuss trade with the U.S., but it appears that a trade agreement with the E.U. is unlikely to happen anytime soon. A disagreement over agriculture could derail talks before they even begin. The E.U. says agriculture won’t be up for discussion, while the U.S. insists it must be part of the negotiations.


There have been a number of issues over the past 10 years that were not friendly to the long side of stock index futures. However, the variety of bearish geopolitical issues, including trade tensions, have had only a temporary negative impact on the stock index futures thanks to the bullish interest rate influence.


CENTRAL BANKS


AROUND THE WORLD ARE BECOMING INCREASINGLY DOVISH IN THE FACE OF A GLOBAL ECONOMIC SLOWDOWN IN GROWTH.


Source: QTS


8 | ADMISI - The Ghost In The Machine | July/August 2019


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