The Rooster Call: Could FED Raise Interest Rates & Its Possible Impacts

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

We start the day with positive developments in Ukraine as reported by BMO Capital Management:

Ukraine’s President says Russian forces are being withdrawn from its east.
 “According to the latest information I have received from our intelligence, 70 percent of Russian troops have been moved back across the border,” Poroshenko said. “This further strengthens our hope that the peace initiatives have good prospects.”

This action helps reduce geopolitical pressure even though the end game is yet to occur.  Russia took action in the face of new sanctions under discussion today in the European Union.

OPEC cut 2014 world crude demand growth forecast by 50,000 barrels per day. What does this mean?  Quite simply, economic growth is expected to remain at present levels or lower.  Increased energy usage is associated with increased economic activity.

Worry over Scotland leaving the UK has entered trading minds who think this action will reinforce a break-up between Catalonia province and the Spanish central government.  Traders are selling Spanish bonds. Uncertainty like this will find its way into other European financial assets. Prime Minister Cameron is saying everything but the obvious to the Scots…please don’t leave on my watch.

Last night we talked about the Canadian dollar, which I have called dangerous at present.  Here’s a comment on overnight action from BMO Capital Management reinforcing my position:

USDCAD had a spike in early London trading and got back up above 1.1000 but has drifted back lower over the past two hours. The spike is a bit mysterious with no obvious explanation other than cross trade liquidation or mysterious ‘flows’.

In other words…no one knows the reason for the Canadian dollar overnight movement.

Our Euro trade up $7800+ per position.  Barclays team of experts issue a report calling for Euro to hit 1.17 in six months and 1.10 in 12 months. We agree with the 1.17 number and have not considered lower levels at this point in time. What we have considered is the perfect storm and the idea of trading technicals with an eye on the fundamentals.  This method serves us well.

And more good news for our Euro trade comes in the form of France saying she will over-shoot the 3% maximum allowed deficit target (an agreed condition of the Euro structure) until 2017. When the EU crafted the Euro operating structure there was no meaningful forms of accountability to insure deficit compliance.  Since we are living in a world of deficit spending this is not a big deal…just an observation.  For trading purposes, however, over-shooting the deficit target is a negative to the Euro.

Our grain trade up $1,800 per position. Grains will likely go quiet in front of Thursday’s USDA report.  Note if USDA pulls a rabbit out of the hat in the form of dramatic demand or lower than expected supply, the market will trip over itself running prices higher against our position.  Not to worry. We adjusted protective stop last night.  If the USDA confirms what everyone already knows then lower prices are coming.

Bloomberg says traders are worried about the FED raising interest rates sooner than expected given the spate of good economic reports.  This anxiety bleeds into equity index futures where worry has caused me to look at the charts last night wondering is there “Trouble in Paradise.”

Contrast the idea of raising interest rates with comments from Sam Zell, a man who made most of his money buying troubled companies and turning them around as well as real estate investments. Speaking on CNBC (as reported by Zero Hedge) Zell said…

“The stock market is at an all-time, but economic activity is not at an all-time,” explains billionaire investor Sam Zell to CNBC this morning, adding that, “every company that’s missed has missed on the revenue side, which is a reflection that there’s a demand issue; and when you got a demand issue it’s hard to imagine the stock market at an all-time high.”

Amen, brother. You are preaching to the choir.

Today’s Reports and FED Activity

7:00 MBA Mortgage Applications
10:00 Wholesale Trade
10:30 EIA Petroleum Inventories
1:00 PM Results of $21B, 10-Year Bond Auction

Overnight/Pre-Market

  • Bonds are lower.
  • Equity index futures we follow are lower, with exception of a strong Nikkei 225.
  • US dollar higher.
  • Euro resumes drop after a flirt higher yesterday and overnight.
  • Yen lower.
  • Aussie dollar three large down days reflecting fundamentals of lagging Chinese demand for raw materials.
  • Metals lower thanks to US dollar strength and low inflation.
  • Grains quiet.
  • Softs, with exception of Cotton lower.

Think About This!

Apple’s stock fell yesterday to the consternation of folks who were looking to make a bundle of easy money.  We should monitor any pull back on AAPL. The Apple Pay hook-up with Visa has forward thinking game-changer potential.

We had an option position on AAPL that did nothing for the longest time and finally we got bored with the trade. We left the party before yesterday’s product release.  Enough profit was made to pay commission and buy lunch for each position held. We thought there would be more hype going into the product launch. A cheap trade so why not?

Have a great trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.