China Inflation Risk

Monday was a blah, mildly-down day on light volumes for markets.  A day with no news, no earnings, and the overhang of upcoming news later this week just gave the bulls nothing to get themselves started.  The SPY lost 0.31%, the DIA lost 0.33%, and the QQQ lost 0.45%. 

In trade-related news, there seems to be optimism that the White House and Congress will come to an agreement on the USMCA (successor to NAFTA).  Still, US negotiators are scheduled to head to Mexico next week to iron out additional issues such as worker rights as demanded by Congressional Democrats.  So, it’s not a done deal yet.

Related specifically to China trade, CNBC’s lead story is adding fuel to the “a deal will be reached soon” camp.  It reports (belatedly, I’ve been telling people this for a couple of months) that China has dramatically increased the import of US Soybeans.  For the record, while it looks dramatic, they were essentially importing none last year.  What they’ve done is to take their US imports back to the pre-Trump 2017 level.  It is worth noting that they’ve also increased soybean imports from other countries as well.  In a likely more important story, overnight China announced it’s inflation rate has risen to 4.5% last month. This was largely due to a huge increase in pork prices, which shot up due to disease forcing the culling of most herds in Asia.

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The major economic news Tuesday is limited to Q3 Non-farm Productivity and Q3 Unit Labor Costs (both at 8:30 am).  The only earnings of note are AZO before the open.  All of this may be overshadowed again as we inch closer to the Dec. 15 “New Tariffs on China” deadline, the UK election and Fed / ECB rate decisions.

Overnight, Asian markets were mixed, but mostly in the red.  In Europe, all the major markets are deeply red at this point.  As of 7:30 am, U.S. futures are all pointing to about a half percent gap lower.

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With impeachment being the main domestic story, Europe awaiting the outcome of the ECB meeting and the UK election, and markets scared by Chinese inflation, the impetus is to the downside this morning.  So, we may see some follow-through to the downside.  However, don’t get too far out on a limb chasing.  The bulls have been incredibly resilient since summer and are looking for any excuse to run to new highs again.  Trade whatever chart we get handed.  Continue to take profits, move stops, plan your trades, and trade your plans. 


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