The Rooster Call: Global Threats & The Impact on Oil Prices

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

War Department
Ukraine and Russia are talking cease-fire. This is big news! No final agreement has been reached (although overnight a false report gave the impression). Markets reacted as expected with Euro moving higher along with equity indexes and falling bonds. This action is a precursor to the real thing. Putin has a tendency to get whatever he wants and global leaders along with European business leaders likely desire the problem to fade away. This means Ukraine provides concessions, not Russia.

Islamic State proves to be more diabolical than any Hollywood movie. Beheadings continue until further notice. The group appears stronger, faster, and more intelligent than any organized group to emerge from the region. Thankfully global powers are responding albeit slowly. What needs to happen is leadership from within the region to take charge with Western fire power backing. As traders siting at our desks, our only concern are the oil fields, because the oil fields spur volatility. Elimination of threat suggests lower oil prices continuing our outlook for crude.

Euro Rise
Euro rose based on potential cease fire, but beneath the surface, I believe a quiet short-covering is taking place in-front of tomorrows ECB policy statement. If the ECB does nothing, then the Euro could knee-jerk higher (although likely a momentary bump in the downward path) in my opinion. Trend and momentum tell the tale, here.

The big move up (also likely short-term) is final “peace in the valley” between Ukraine and Russia. A large Euro “relief” rally knee-jerk higher expected as geopolitical tensions evaporate along with sanctions. We need to prepare for this move watching our swing trade and tightening protective stops along the way.

China Helps the Market with Services PMI
This is a market starved for good news so when China announced stronger than expected PMI service sector growth, equity index futures rose. After all, China is the second largest world economy, right?

Japan Continues Work on Fiscal House of Cards With Cabinet Shuffle
You have to admire Japanese Prime Minister Abe. He is throwing everything but the kitchen sink at the Japanese economy and deflation. It’s as if he says matter of factly, “nothing else worked, so why not?” The Japanese stock market rises on announcement of a “market friendly” addition to the Cabinet.

Bloomberg reports Abe made Yasuhisa Shiozaki, the Health Minister giving him the mandate to change the Government Pension Investment Fund, (the world’s largest retirement fund), to let it buy more risky assets…i.e. stocks. Abe is re-writing the history books of government economic policy. This move is an admission there are not enough buyers in the stock market. An earlier Bloomberg report cited middle age and young adults shun the Japanese stock market. Abe is lighting the fuse hoping for explosive public buying. I will discuss how we can ride the coat tails of this historic move by separate email with the idea of entering gingerly, then adding to the trade in the Fall. We start small on this one.

It’s Beige Book Wednesday – 2PM ET.

Thursday is a big day with ECB policy statement followed by the Draghi press conference.

Today’s Reports and FED Activity

7:00 MBA Mortgage Applications
7:45 ICSC Retail Store Sales
8:15 ADP Jobs Report
8:30 Gallup U.S. Job Creation Index
8:55 Redbook Chain Store Sales
10:00 Factory Orders
2:00 PM Fed’s Beige Book

Overnight/Pre-Market

  • Equity index futures are higher. Nikkei 225 tests resistance.
  • Bonds lower, but higher off overnight lows.
  • Grains quiet with exception of Wheat dropping due to Ukraine potential cease fire. Further drop here expected.
  • Metals quiet.
  • Softs quiet. Coffee pulled back with inside day action.
  • Currencies quiet with exception of dangerous Aussie surging down on Tuesday and surging back up on Wednesday. Danger.
  • Crude catches its’ breath after large drop Tuesday. Tuesday’s drop was discussed in the Trader Weekly Review issued Monday as a potential trend trade occurrence.
  • Natural gas looking lower with incremental movement continuing yesterday’s drop.

Think About This!

From Seeking Alpha:
Bank regulators are expected to finalize rules today that would require banks to hold capital against every asset on their books, and approve of a “liquidity-coverage ratio”, which would require large banks to load up on ultra-safe assets to fund their operations for 30 days. The new rules have Wall Street concerned due to the likely harm to earnings and lending restrictions, although regulators say the policies will create a safer financial system.

Let us never forget the $700 billion dollar TARP program. Recall just one bank, Citibank received a $45 billion dollar U.S. government bailout because they could not run a proper business model.

Have a great trading day!

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