The Rooster Call: Sabre Rattling in Southeast Asia Today as China Warns Neighbors

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

Good Morning Traders!
Sabre rattling in Southeast Asia today as China warns neighbors China will “take all necessary measures” to protect its interests. This statement made on the heels of a adverse ruling by the Permanent Court of Arbitration in The Hague, which sided with the Philippines, who brought case against China for taking over 85% of the South China Sea. Today China claims airspace over the region.

China accused the court of being “manipulated,” according to a report by ft.com. Now this is really funny, because China is one of the best grand manipulators when it comes to manipulating. Take Taiwan as the prime example.

The Chinese government bankrolls aid projects all around the undeveloped world ostensibly for humanitarian reasons, but in reality, the projects are tied to commitment votes against Taiwan in United Nations where China and Taiwan are at odds. “We will build something for you as long as you side with us at the UN.”

At this point in time, traders are not concerned. However, we file this as a potential war department item for the future along with any mistakes between Russian and NATO forces in the Balkans. Both are potential black swan events.

Crude Update – API report shows a USA inventory build of 2.2 million barrels, which “surprised” analysts who are constantly cheer-leading the prospects of future increased demand. OPEC said Tuesday global demand should rise by 1.15 million barrels per day in 2017. Of course this is simply a guess. Crude report today 10:30AM ET.

S&P expects downgrades will continue for sovereign credit ratings accelerating into next year. Negative outlooks on countries creditworthiness now outnumber positive outlooks by 30 (ft.com).

Japan reduced 2016 GDP growth forecast to 0.9% from an earlier forecast of 1.7% last January. Japan is the third largest economy in the world.

Eurozone industrial production reported falling by -1.2% in May. Expectations called for a -0.8% decline. No surprise really.

Chinese exports in June fell -4.8% year over year in June in dollar terms. Imports fell -8.4%. China is the second largest economy in the world and the number one importer of raw materials. In Renminbi terms, exports grew by 1.3% year over year, while imports fell 2.3%. Most business in China is conducted in US dollar contracts. Separately, Chinese rail freight, an indicator for industrial movement of goods, fell 7%.

Germany issues it’s first 10-year bund at zero percent coupon and negative yield. Investors holding to maturity will lose money.

Economic Events

7:00 MBA Mortgage Applications
8:30 Import/Export Prices
9:00 Fed’s Kaplan: Monetary Policy
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $12B, 30-Year Note Auction
2:00 PM Treasury Budget
2:00 PM Fed’s Beige Book
6:30 PM Fed’s Harker: Economic Outlook

Markets

VIX hits lower again deep into complacency.

Equity index futures higher as follow-through continues in the “summer rally!”

Crude report out today at 10:30AM ET could move equity index futures…just be aware. Crude incrementally lower. Up to Wall Street for this dream to continue.

Beige Book a great excuse for raising the market this afternoon. Report at 2PM ET.

Gold whack yesterday. Gold higher today. Silver continues consolidation.

Natural gas moves back into consolidation.

Copper lower off overnight highs after Chinese data, but still higher as everyone ASSUMES a new stimulus plan in the offering from China and Japan.

Grains higher. Perhaps this action is due to lower US dollar. We relish higher prices from which to sell short.

Coffee recovers yesterday’s losing price bar action. JO trade is fine for those working runners. We must clear 149.10.

Sugar consolidates.

USA Bonds higher on news of Germany’s zero interest bond issuance. What a world!

Euro higher as US dollar lower. Nothing special.

Yen incrementally green…means nothing. Monday night’s sell Yen suggestion certainly worked! Runners might capture further gains as discussed in the nightly video.

Canadian dollar lower incrementally with crude. Aussie incrementally higher with metals.

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