China and the dollar may be about to collide

July 27, 2015

Singapore (July 27)  Who wants a boring Monday, anyway? Chinese shares saw the biggest daily fall since 2007 overnight, partly on fears that officials may be trying to pull back on supporting the market. And that means things got ugly all over again — unless you’re a gold bug. The metal’s closing in on $1,100 an ounce.

Check out our chart of the day, which offers one theory why sellers aren’t yet done with Shanghai.

China’s worries have spread to oil, which is adding to last week’s 5% drop. With commodity prices lower, some say it looks less worrying on the inflation front, reducing the chances of a near-term Fed hike. The CME Group’s FedWatch finds a 51.3% implied probability of a 25 basis-point Fed hike in September. For October, that same 25-basis-point expectation is around 43.8%.

We may or may not know more when the Fed meets this week. But IG’s Chris Weston says don’t expect a “smoking gun” that provides clear evidence the Fed will hike in September. That’s something that could present another headache for dollar bulls, with the currency under pressure this morning.

That brings us to our call of the day, a contrarian stance that rides against the everything-is-going to-be-A-OK-with-the-U.S.-economy camp — chiefly, those betting against the dollar.

While Monday’s earning’s calendar looks pretty subdued, rest up, because more than 150 S&P companies are on deck to report this week. Several of those will be energy companies like Exxon Mobil and Chevron, in a sector that has failed to help boost the stock market so far.

“This sector is also the largest contributor to the year-over-year decline in both earnings and revenues for the S&P 500 as a whole,” said John Butters, senior earnings analyst at FactSet. More on that here.

Key market gauges

Wall Street is set to struggle against a sea of red. Futures on the Dow YMU5, -0.61%  and the S&P ESU5, -0.52%  are down, along with the Stoxx Europe 600 SXXP, -1.55%  Again, the ugliness started in Asia ADOW, -1.47% with an 8.5% loss for the Shanghai Composite, SHCOMP, -8.48% while the Nikkei NIK, -0.95%  also lost nearly a full 1%.

Crude CLU5, -1.14% is inching further away from $48 a barrel. Gold GCQ5, +0.61%   and silver SIU5, +0.50%  are in a sweet spot this morning, helped by the dollar DXY, -0.59% pullback. Contrarian signal? Hedge funds are at a gold-hating high.

Closer to stateside, Puerto Rico bondholders offer up a recovery plan for the embattled island.

The buzz

Israeli-based Teva TEVA, +11.96%  will pay $40.5 billion for Allergan Generics AGN, +9.10% and has withdrawn its proposal to buy Mylan MYL, -12.80% In early premarket, Teva and Allergan are up, but Mylan is well off.

Apple AAPL, -1.32%   plans to start selling the Apple Watch at Best Buy BBY, -1.22%  stores in August. It’ll be the first big U.S. retailer to sell the smartwatch, reports The Wall Street Journal.

U.S. authorities hit Fiat Chrysler FCAU, -2.51%  with a record $105 million fine for recall lapses over millions of autos. An independent monitor has been assigned to the auto maker to audit its prior recall processes.

Soirce: MarketWatch

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