The Rooster Call: How Talks of Easing Are Affecting the Markets

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

Good Morning Traders!
Overnight, traders rejoice at the prospect of continued easing talk. Cause and effect at work. Crude and ES higher. Thank you, Governor Kuroda for your attempts at rescuing equity index futures and the “risk-on” attitude.

Students of history, especially military history will appreciate the comparison of Bank of Japan governor, Haruhiko Kuroda’s rhetoric with some of the great lost causes of the battle field. The rhetoric is eerily the same. Today, Kuroda says there is “no limit” to monetary easing stating he will slash Japanese interest rates deeper into negative territory if necessary (ft.com).

Okay, not a history buff?  Hmmm, how about Animal House where John Belushi screams, “nothing is over until we decide it is!”  Same type of rhetoric.

Kuroda lays it on thick today invoking pride saying “It’s no exaggeration that [ours] is the most powerful monetary policy framework in the history of modern central banking.”
Kuroda is turning tragic in slow motion...one can only imagine the political sniping going on in Japan.

Kuroda has moved from Peter Pan to a battlefield rally call.  No doubt the man is sensitive to being held accountable when nothing is working. He cites the Bank of Japan negative interest rate is -0.1% versus Swiss National Bank at -.75 and the Swedish Riksbank at -1.1% interest rates.

Meanwhile, the public is numb to low interest rates. This nation of savers remembers the heady days of the Nikkei and the explosive real estate bubble. Nothing the Bank of Tokyo can do will force consumption increase.

10-year Japanese bonds now yield record low 0.07% after the Kuroda fire-bomb “no limit” speech.  Yen did not fall! Fear enters “risk-on” attitude. Higher Yen pummels Nikkei 225.

Crude regained full control over equity index futures yesterday and the earnings release from energy firms added a desperation in selling. ES 1900 remains a major line in the sand.  Any upside break out above overnight high signals technical strength and potential 1920 area target.  Downside target is 1880 initially.

Good news out of China with services PMI expanding from 50.2 in December to 52.4 in January…a six month high. Services are not users of raw materials of course. Shanghai Composite down negligible -0.4%.

China set 2016 economic growth target between 6.5% and 7%.

Japanese services PMI rose from 51.5 reported in December to 52.4 in January.

Eurozone services PMI fell from 54.6 in December to 53.6 in January…a four month low. Still, the number show economic expansion.

UK services PMI rose from 55.5 in December to 55.6 in January. Pound higher on the news.

Chinese state-owned ChemChina bid $43 billion for Swiss seeds and pesticides firm Syngenta. This is a huge positive for the Chinese farming system.

Bloomberg’s been pushing oil and today comes out with an article oil prices could increase by 50% by the end of the year, with most analysts predicting a $15 per barrel rise. Anyone can make a prediction…remember that.  Front page status of the prediction is an attempt in my opinion to shape opinion.

The FED is asking lenders how they would handle prolonged periods of below zero interest rates.

USA Bonds Soared Big Time in run to Safety yesterday.

We have the crude report today at 10:30AM ET. Expectations call for a gain of 4.8 million barrels.  Fickle trading around this report so be careful. If the build is less than expected, price could rise as we saw last week.

Economic Events
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report – 205K New Jobs is Excellent
8:30 Gallup U.S. Job Creation Index
8:30 Treasury Refunding Quarterly Announcement
9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
10:30 EIA Petroleum Inventories

Markets

  • Equity index futures in Asia and Europe are lower versus higher USA equity index futures. This divergence not regularly seen. 
  • VIX higher.
  • Crude in the green with $30.00 the bench mark.  This is back and forth trading dangerous for position traders.
  • Natural gas lower. FT.com says a price war coming in natural gas.
  • Copper higher as normal seasonal stirrings attempt to lift the red metal.
  • Grains quiet.
  • Sugar incremental green yesterday and incremental red today.
  • Other softs nothing special.
  • Bonds lower in profit-taking watching the incremental green in ES.
  • Euro a day trading instrument. We successfully traded Euro yesterday in live room for clients.
  • US dollar lower.  This FED idea to question banks on how they would handle below zero interest rates could have spooked the market.
  • Pound breaks side-way channel.
  • Aussie tricksy.
  • Canadian dollar higher on oil.
  • Gold stuck in tight consolidation. Friday’s Employment report likely to move gold. 
  • BONDS, CRUDE, EURO, EQUITY INDEX FUTURES show day trading movement.

Think About This!
Citibank agrees to pay $23 million as settlement for investor lawsuit over alleged manipulation of benchmark interest rates. No surprise…new day, a new fine.

Have a great trading day!

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