The Rooster Call: Euro Weakens on Acknowledged Fundamentals

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

Good Morning Traders!

The Greek Parliament passed reforms required by creditors in order to receive a new bail out. The news immediately lifted equity index futures.  This agreement will change the face of Greece if successfully implemented in the form of forced structural change.  As for the bail out, now that the IMF has said Greek debt repayment is unsustainable and contributes to shackles on the economy, others are sharing this view including hard-line negotiator Schaeuble suggesting a temporary exit out of the Euro might be better for Greece.

For now, the Euro continues weakening as the fundamentals are finally acknowledged. Also, Yellen has asserted a strong intention for a FED interest rate rise in 2015.  Although continuing to cloak any rise in rates with an understanding the FED looks at economic data…Yellen brings out the notion if a rate increase is very subtle perhaps the markets will not over-react.  Any talk of a FED increase is supportive of US dollar strength, which in turn weakens Euro. 

Today we have the European Central Bank monetary policy statement at 7:45AM ET with no change expected in quantitative easing. The Draghi press conference held 45 minutes later can cause Euro to move so day traders be aware.  The basic un-said message is “it’s not important that we manufacture money out of thin air…what is important is how we manage that money.”  This is the new normal for central banks.

The Asian Development Bank (ADB) cut the 2015 and 2016 growth forecasts for China and the rest of Asia. China’s growth reduced to 7% in 2015 and 6.8% in 2016 (this is still excellent growth for the world’s second largest economy). 

S&P issues warning of China’s corporate debt now 160% of Chinese GDP, and 8 times larger than the Chinese government debt. The debt is growing at a faster rate than GDP ( Defaults are expected going forward burdening the government with additional debt load.

Bloomberg says if you include Chinese household debt together with corporate debt, you get 207% debt to GDP at the end of June.

S&P also warns against US junk bond growth during the FED’s QE, saying “with QE tapering and more “B” issuers borrowing, fundamentals are leaning toward the market boiling over. The vast volume of institutional and retail money flowing into speculative-grade bonds also suggests vulnerability.”

Through all of the Greek drama and continuing increasing major world central bank debt loading…gold has remained untouched and unloved. The lack of interest in gold signals full entrancement of central bank guardians by the investment community. The attitude is central banks can solve all problems and central banks are keeping stock markets alive at all costs.

We have a grain export sales announcement today. Corn should peak in July, with soybeans price peak in late July/early August. At this point in time weather concerns mainly focused on soybeans. Climbing US dollar makes US grains the most expensive in the world.

Economic Events
7:45 – ECB Policy Statement
8:30 – Draghi Press Conference

8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:00 Philly Fed Business Outlook
10:00 NAHB Housing Market Index
10:00 Yellen delivers semi-annual monetary policy
10:30 EIA Natural Gas Inventory
4:00 PM Treasury International Capital
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Markets as of 7:20AM ET

  • DAX higher with STOXX 50 on Greece “Yes” vote.
  • Nikkei 225 higher on Greece “Yes” vote.
  • ES/NQ/YM/TF higher on Greece “Yes” vote.
  • ES crosses 2110 making 2123 next objective.  Peace in the valley until price falls below 2110.
  • VIX futures back down below 14.
  • US Crude trades quietly in about a $550 range overnight…very slow trading.
  • Natural gas holds close to 2.90.
  • Copper in tight side-way consolidation.
  • Platinum, Palladium, and Silver all lower as evidence of low global industrial demand.
  • Gold lower breaking support.
  • Corn and Soybeans incrementally higher in front of export sales report.
  • Wheat incrementally lower.
  • Cocoa pauses rise.
  • Cotton dangerous.
  • Coffee looking lower after hitting our benchmark continuing it’s pattern.
  • Sugar quiet. Local supermarket has “buy one get one free” telling you the sugar situation.
  • Bonds rose yesterday with Yellen and today see incremental movement lower.
  • US dollar climbing higher.
  • Euro falling lower.
  • Pound flat.
  • Yen lower.
  • Canadian dollar deep drop yesterday on central bank policy statement lowering interest rate. The Canadian dollar at multi-year lows.
  • Aussie dollar below 74 in side-way action.

Think About This…
With the Greek bailout progressing, a heavy weight of uncertainty is lifted from the market. The resumption of a falling Euro should lift European equities (history is our guide).  The ES will get a piece of that lift too. Rumblings of junk bond debt levels in the USA along with Chinese debt levels are a concern, yet the question we have asked for months and months…where else can investors place their money?  The alternatives are few.

Enjoy your trading day! Euro could move today for day traders.

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