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Wednesday, July 11, 2018

Market Alert - Pre-Market

Futures vs FV: SP -18.29; DJ -209.66; NASDAQ -55.85

Futures predictably lower after the late Tuesday announcement of $200B more in US tariffs on China goods. China says it will respond with delaying mergers, slowing US firm licensing, and increasing inspections of US goods. Wow, that is really punching back. The trade picture is lopsided so China has little leverage on trade. It is the 'other' things that so easily spooks so many analysts. They fear standing up to China it is a change, an unknown versus the SOP of acquiescing to whatever China wants to do. It is tough making a stand. The West has not done so in a long, long time.

NATO: Trump this morning says Germany is 'captive to Russia' because it gets 'so much of its gas from Russia.' Stark truths. NATO was created to prevent Russian (then Soviet) aggression. If Germany relies upon the alliance's nemesis for a majority of its energy, how can Germany effectively prevent that aggression? Pointing out the obvious brings rants of 'insane,' 'out of control,' 'demeaning our allies.' Semantics.

PPI: +3.2% year/year, the highest since 11/2011. Some serious price increases. With a GDP last at 2%, even if it is 4% Q2, this is not the right direction. Supply should alleviate pricing pressures. If that is not happening, then supply needs more freedom to meet demand. That is the only way to avoid price increases. A massive recession can do that as well, but the first action in a recession is price increases as supply collapses.

NOW, consider the yield curve, the 2% Q1 growth, and the price surge. Could this be an indication that, despite the 'great economy' the Fed talks about, that a recession is starting? I know, sounds crazy. Just looking at what is happening and positing possibilities.

ECB: Says may hike rates sooner than expected. Euro is up modestly as a result. Ho-hum.

Bonds: 2.851% vs 2.867%. Bonds rally on the uncertainty of the trade issues.

EUR/USD: 1.1745 vs 1.1734. Euro a bit stronger as ECB talks of a rate hike faster than widely expected.

USD/JPY: 111.12 vs 110.89. Dollar surges against yen.

Oil: 73.31, -0.80

Gold: 1252.50, -2.90

Futures are off the lows but not a lot. Definitely the recent move higher will be tested and the takeaway from this session is whether the bids return today.

Jon Johnson, Chief Market Strategist

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