The Rooster Call: Potential Trouble for The Bank of China

Chinese Yuan

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

Global News

China’s foreign exchange reserves fell nearly $70bn last month as the country’s central bank burnt through more of its war chest in its battle to defend the renminbi from greater depreciation on the back of accelerating capital outflows (ft.com).  What this means is the Bank of China has spent a ton of money buying Yuan as outside market forces have sold the currency. The Bank of China has experienced 5 consecutive months of reserve draw-down.

Why is this important?

China is the second largest economy in the world. If they one day stop defending the currency, they import inflation. If they boldly decide to devalue in order to stop using forex reserves, they are manipulating the currency, they still import inflation, and international commodity and equity index futures knee-jerk lower hard thinking the second largest economy in the world is fiscally imploding. Officials did this in August 2015 causing a shock drop in USA equity index futures.

On November 28, Chinese officials toughened laws for international firms routinely taking profits out of the country. This protectionism is a worry. We have already discussed China limiting gold imports attempting to strike down those who would convert currency into gold.

Global Economy

Pound weakens today on surprisingly weak UK industrial data dropping 1.3% in October from September. This is the third monthly consecutive lower reading. Three months generally thought of as a trend. Pound basically rose to our resistance area and is falling back…nothing special.

German industrial production up 0.3% in October from September’s -1.6% contractions. Basically, sluggish activity. The report helps boost DAX and STOXX 50.

The Australian economy contracted for the first time since 2011. GDP fell 0.5 per cent quarter-on-quarter in the three months to September 30. Aussie dollar initially fell on the news, but is recovering.

The worlds oldest bank, Monte dei Paschi sees it’s stock rise 10% as grave dancers place bets the Italian government is not about to let this bank fail. A government bailout is under consideration by the heavily indebted Italian government. Seeing Italian banks rise causes herd behavior to bid other banks and this activity also helps DAX and STOXX 50.

It is beneficial for traders to cast an eye on world fundamentals periodically staying informed that the status quo has not changed globally. Economists and market analysts will next fret about the strong US dollar hurting multinational corporations in an already soft over-seas market.

The game on Wall Street is a constant selling job that everything is fine. Note the frequent comments the USA will lead the rest of the world out of moribund growth…really?

Economic Events

  • MBA Mortgage Applications 7:00 AM ET
  • Gallup U.S. Job Creation Index 8:30 AM ET
  • JOLTS 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Consumer Credit 3:00 PM ET
  • Treasury STRIPS 3:00 PM ET

Markets

The rise in DAX and STOXX 50 suggest USA equity index futures will rise on the open. Nikkei 225 incrementally higher.

Crude working on second red day as profit-taking urge proves too strong. Remember another OPEC meeting on Saturday with non-OPEC members regarding supply cuts could shape markets Monday.

I think currency trading today could prove difficult in front of the Thursday 7:45AM ET ECB policy statement and subsequent press conference. Jack be nimble, Jack be quick!  US dollar and Euro have barely moved.

Bonds consolidation continues with 30-year bonds incrementally green as I write.

Gold consolidation continues with incremental green thanks to US dollar incremental red. Silver follows gold.

Grains remain dangerous in my opinion. Wheat looks like it is ready for another move lower.

Softs are quiet with Cocoa continuing it’s drop. Sugar attempts to halt falling yesterday after touching one of our benchmarks. Coffee looking for a consolidation spot.

Think About This!

Another day…another bank fine… report from Reuters…

The European Commission has fined Credit Agricole (CAGR.PA), HSBC (HSBA.L) and JPMorgan Chase (JPM.N) a total of 485 million euros ($520 million) for their alleged participation in a cartel to manipulate the price of the Euribor financial benchmark.

The Commission said on Wednesday they were part of a seven-bank cartel that colluded between September 2005 and May 2008 to distort the Euribor interest rate which was set using quotes submitted by a panel of banks and is widely used in international money markets.

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