Oil and Currencies in Play as China Stumbles


Oil, China and currencies: They’re all in play today as a slew of global events sweep markets.

Market Insights recently detailed how President Trump’s trade policies weakened business confidence overseas. Last week we cautioned the slowdown — especially in China — could weigh on crude oil (@CL). Beijing confirmed that hypothesis today as July import numbers showed weak demand from smaller refineries in the country. (The next big event to watch is the U.S. Energy Department’s inventories report at 10:30 a.m. ET.)

A lot more is going on. China’s trade surplus last month missed estimates ($28 billion versus the $38 billion consensus) as the country boosted imports. Meanwhile policymakers have been forced to defend the yuan against bearish speculators — at the same time currency devaluation and trade wars lift inflation. For example yesterday, Bloomberg reported oil prices are rising in the country as speculators seek exposure to the rising U.S. dollar. And today, Reuters says Chinese soybean prices had their biggest gain in a decade after their government moved to block cheaper U.S. imports.

This is complicated, with a lot of moving parts. But the long and short of it seems to be upward pressure on the greenback (@DX) and downside risk for @CL. Traders looking to ride these trends may want to consider that the Russell Small Cap ETF (IWM) tends to benefit from a strong U.S. dollar while the iShares MSCI Emerging Market ETF (EEM) could face selling pressure.

The story is similar in Europe as the euro (@EC) tries to hold its 52-week lows. Italian Economy Minister Giovanni Tria told a newspaper this morning that the troubled country’s economic growth would miss estimates this year. Turkey’s also a risk as wire reports say Ankara is running low on hard currency to meet upcoming debt payments.

In conclusion this isn’t meant to be alarming or even necessarily bearish. After all, U.S. stocks are doing well as a great earnings season winds down. But traders hankering for volatility may want to keep an eye on currencies and crude oil.

iShares MSCI Emerging Markets ETF (EEM)
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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.