The Rooster Call: Recovery in US Bonds

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

Good Morning Traders!

Greece in the news as word emerges this week’s payment made to the IMF was with IMF reserve funds. Desperation is taking hold when such games are played knowing no one can keep a secret. So Greece is burning up cash and credibility.  Spanish newspaper, El Mundo states the IMF will not participate in a renewed Greek bail out. If true, then the European Union has to face up to the hard facts that yes, the currency bloc is capable of dissolution. Bloomberg reports Euro zone governments are talking about creating a aid package for Greece to cushion transition out of the Euro.  We do not know if this talk is true or simply a negotiation tactic in the Greek debt talks.

Overnight European GDP growth reported +0.4% in the first quarter of 2015. This is market positive. A concern is German GDP growth slowed to +0.3%. However, France, mired in contraction, showed an expanding economy at the fastest pace in almost two years reporting +0.6% (FT.com). Italy also saw better than expected growth +0.3%. Greece slipped back into recessionBusiness Insider dismisses the growth figures as a disappointment citing Germany not meeting expectations Year over year Euro zone growth reported at +1% versus expectations of +1.1%.

The Bank of England downgrades UK growth forecast. No doubt the Bank of England desires a weaker Pound. The down grade is interesting after yesterday’s upbeat industrial production report. The Bank of England is reluctant to raise rates against the soft Euro.

IEA (International Energy Agency) says the price war battle for market share has just started with supply continuing to out-strip demand. While there were concerns USA shale drilling would cut back, the recent rise in crude pricing has brought these producers back on-line. Several shale producers tell IEA they have achieved cost savings in the field as the stress of OPEC’s price war hit. Cost savings means cheaper production (FT.com). Bottom line: crude remains a day trading instrument due to range and anyone holding a position trade should be careful for potential of abrupt sell-off if this crowded trade heads for the exit door at the same time. Crude trades higher perhaps in anticipation of a reduction of inventory reading in today’s 10:30AM ET crude report.

Reuters discusses Chinese money supply grew at it’s slowest pace on record and investment growth dropped to its lowest in almost 15 years. Declines in fixed-asset investment, slower growth in government and private sector spending, and a sharp drop in the mining sector contribute to the decline in borrowing. Property investment dropped in the period from January through April to the weakest level since 2009. Retail sales, reported up 10%, missed expectations of a 10.5% reading for last month. Industrial Production rose, but missed expectations. General Motors cutting prices on 40 models in China (reported yesterday) after sale fell.  Traders continue expectations of additional government stimulus in the coming months.

For all the economic reporting…the final assessment is more of the same…Euro zone moves as if walking in thick mud. China continues slowing, and no one knows how markets will take whatever Greek resolution emerges. Nothing has changed with the fundamentals appreciably. Euro is flat as I write. DAX is flat.

Recovery in USA Bonds?!A buy signal emerges in USA bonds, as pointed out in the nightly video yesterday. Today’s Retail Sales at 8:30AM ET will likely affect this market. Bonds, 10-year Notes, and 5-year Notes are all in play for today. The reasons bonds are climbing could certainly be what I discussed yesterday…the yield increased so institutions are locking in gains as traders see support and move prices higher. Next stop is 155^24 followed by 157 area if reversal continues.  This is a big range. Yesterday’s bond price bar looks of the reversal type…take note!

Soybeans fell over 1% on the USDA report yesterday. Corn barely moved. Option traders were advised to exit a trade in CORN for about the laziest way to make a 68% return on investment from a trade placed March 31.
El Nino in the news as “officially started,” by three separate weather services. The brunt of the effect expected in the Far East and Australia. USA effects could see beneficial rains in the crop growing season. IF a full-blown El Nino emerges, the crops susceptible are coffee, sugar, Indian cotton, and Australian wheat. Just monitor.

Economic Events
7:00
MBA Mortgage Applications
8:30 Retail Sales – Unchanged for April.
8:30 Import/Export Prices
10:00 Atlanta Fed’s Business Inflation Expectations – Worth Watching
10:00 Business Inventories
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 7-Year Note Auction

MarketsDAX and STOXX 50 fluctuate between flat, incrementally higher, and incrementally lower. DAX traders await the USA trading session for direction.  Nikkei 225 higher.USA equity index futures higher, although off the overnight highs.  Surpassing the overnight high is bullish. Another bullish sign is re-test  of overnight low and rejection of this low. VIX futures are lower.Bonds higher.US dollar lower testing bottom of consolidation support. Lower US dollar drives so many instruments…big time. All currencies are higher against the US dollar.

Crude gains both Brent and USA “CL” contract. Crude report today.Natural gas in a rise, fall, rise, fall pattern for the last 4 trading sessions…also called, “we don’t know what to do.”Gold and Silver showing major strength move today, with gold back over $1200 and Silver pops over $17.00.This rise likely due to knee-jerk from lower US dollar.Copper incrementally higher absorbing the dismal data from China.

Sugar takes a pause after influential analyst calls the price increase unsustainable.Cocoa flat after Monday’s break out move higher.Coffee lower.Cotton quiet.

Think About This…The USA Justice Department struck a deal with UBS not to prosecute in exchange for help and confession of a manipulation of benchmark interest rates.  Part of the agreement was UBS would agree not to commit any criminal activity for a two-year period. Now we hear the Justice Department might revoke the deal as evidence emerges UBS, in fact, was engaged in manipulation of foreign exchange rates.

Responding to shareholder pressure to improve transparency, Wal-Mart (NYSE:WMT) said it will start directly disclosing to investors what it spends on lobbying on a state-by-state basis. The step would make Wal-Mart the first constituent of the Dow Jones to itemize state expenditures at that level of detail, drawing attention to spending that in some states reaches hundreds of thousands of dollars (Seeking Alpha).

Enjoy your trading day!

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