The Rooster Call: Downward Pressure on European Stock Markets

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

Good Morning Traders!

  • Panic hits the average person in Greece with reports of the closest thing to a bank run. Meanwhile the stock market is crashing touching a three-year low, with the Athens Stock Exchange General Index down 18% this past week. Today, Euro zone finance ministers are meeting discussing the Greek impasse. We are accustomed to the Euro zone leadership doing nothing except rolling over for Greece.  However, what if this time is different and the Euro zone ministers hold Greece accountable?  Keep in mind, the ECB is said to be on the hook for 138 billion dollars of worthless Greek debt.  German Chancellor Merkel said today it is still possible to keep Greece in the Euro zone. Meanwhile, IMF leader Lagarde issued a warning of no extra time for Greece on the June 30 IMF payment, when $1.7 billion is due.  This uncertainty keeps downward pressure on European stock markets.

What Merkel understands is the symbolic nature of Greece leaving the Euro zone.  The next shoe to drop would be Spain, where anti-Euro zone parties are gaining acceptance among mainstream voters.

  • The FED kept interest rates on hold and importantly signaled future interest rate increases would be smaller than expected. September remains a potential date for implementation. However, one has to wonder if the FED will actually interrupt the back to school shopping season and early holiday season with a rate increase the FED knows is likely to panic bond markets. The idea of a very slow and gradual rate increase is music to the ears of Wall Street traders who view rising bond rates as competition for over-priced stocks.
  • Importantly, the FED downgraded USA economic expectations for 2015 lowering GDP growth rate to between 1.8% and 2%.  Previous forecast in March called for up to +2.7% GDP growth.
  • Chinese equity indexes fall over 3.5% today.
  • Reuters reports the USA home foreclosure rate rose in May to a 19-month high.
  • Political reform in Hong Kong voted down…no surprise. Everyone awaits mainland China’s response.
  • Crude reports shows inventory rise against the findings of the API report.

Economic Events
8:30 Consumer Price Index – The headline number is +0.4% nothing special and below consensus.
8:30 Current Account
8:30 Initial Jobless Claims – Below expectations with is market positive.
9:45 Bloomberg Consumer Comfort Index
10:00 Philly Fed Business Outlook – An important report…day traders be alert.
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Markets

  • Nikkei 225 is lower today testing bottom support.
  • DAX and STOXX 50 are higher off lows following ES.
  • ES is higher attempting a run to 2110, our line in the sand. Resistance starts at 2107 area today.
  • VIX futures fall as ES futures rise.
  • Crude higher shaking off yesterday’s bearish crude report.
  • Natural gas lower, but we have inventory report today at 10:30AM ET.
  • Corn – We dropped a contract and hold a contract short.
  • Soybeans today see profit-taking after the Tropical Storm Bill “pop.”
  • Softs quiet though Cocoa continues showing strength.
  • Bonds lower in tight side-way action.
  • 10-Year and 5-Year notes are active.
  • US dollar lower, yet higher off lows.
  • Euro higher in a “what Greek drama?” attitude. Price pushes toward May high re-test.
  • Yen higher on lower US dollar.
  • Pound higher on lower US dollar.
  • Aussie higher on lower US dollar.
  • Canadian dollar higher on lower US dollar.
  • Swiss Franc higher on lower US dollar. As an aside (nothing to do with the rise of the currency), the Swiss National Bank reiterated they will continue a negative interest rate policy. 

Think About This…Friday is the end of the second quarter AND equity options expiration along with commodity expiration, in what is called “Quadruple Witching.”  Today is likely both a day of positioning before end of quarter as well as “reaction to the action” of yesterday’s FED announcement.

Enjoy your trading day!

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