The Death Star And China Take Center Stage

A number of factors conspired today to drag most markets down or at least inhibit full-strength upward movement. The simplest to identify is gold, which continued to take losses because of fears that indeed, as we have been saying all along, the Fed will not be raising interest rates any time soon. We should also be mindful that transports lead the way in and out of recession.

A bit more complicated were euro markets. They fell apart over reports of more slowing growth in China.

China's dollar-denominated exports fell 3.7% in September from one year earlier, while imports plunged 20.4% to chalk up their 11th consecutive month of decline, official data showed released by the Chinese government. (You can bet the ranch that the figures are considerably worse than the central committee is letting on.)

European industries with a strong presence in the Chinese markets, such as autos and machinery, took a hit from the news. Peugeot Citroen and BMW both closed in the red.

In the U.S. equities, transportation and biotechs tumbled a bit but markets followed a little too willingly. The real cause behind the drop in New York today was the fact that the Dow had seen seven straight days of gains and the market was a) getting nervous and b) profit takers took the field and ran their kind of game.

Further sagging in crude oil futures, both the Texas and North Sea variety, also served to yank the U.S. equities leash. Oil sagged despite the fact that the dollar weakened. West Texas was down 1.15% and Brent North Sea was off over 1.5%.

Even the U.S. Treasury’s 10-year bond yield softened, with face value naturally rising, in the face of the China struggles.

Palladium and platinum cooled off, although again, today’s action could very well be due to profit takers.

We’re just thinking out loud here… but we feel as if we’re already coming into the tractor beam of the Death Star. By Death Star we mean the next FOMC meeting. We also feel that China and the players in its east Asia economic sphere of influence are being hammered by the ongoing threats from the Fed.

We could write a monograph. But China is more dependent on the United States than most of us ever consider.

Wishing you as always, good trading,