Market Brief — Thursday 9/13/18

Asian markets surged higher as foreign investors felt optimistic about the potential for renewed trade talks between the U.S. and China. This also pushed U.S. stocks higher at open, as the major indices “gapped” up above an overhead resistance level. The optimism over settling the trade dispute was quickly shot down by President Trump, but the stock market has largely ignored the news as buyers seem happy that stocks are moving higher.

Treasury short-sellers came in strong this morning after the Consumer Price Index (CPI) came in at +2.7% YoY vs expectations of a +2.8% print pushed Treasury yields lower. Yields slid as today’s 30-year Treasury auction saw strong foreign demand for U.S. debt.

Real average hourly earnings increased +0.2% in August, which is the first increase in the past four months. Consumer prices are still rising faster than wages.

Stocks held their gains for the day and Treasury yields were flat on the day as short-sellers came back to push yields back up. The economic data is not confirming higher yields but those betting against the Treasury market need to see higher bond yields to avoid a massive short-squeeze.

The growth rate of the money supply increased slightly from 4.02% YoY to 4.07% YoY but should resume its deceleration as the Fed ramps up its tightening.

Physical gold got rejected at its overhead 50-day moving average and fell, along with the large gold miner which gave up some of yesterday’s gains. This supports my view that there will be at least one more move down before a bottom is formed.

Agricultural commodities continue to show signs of a bottom as short-sellers are having difficulty pushing prices further down.