Market Brief — Tuesday 9/25/18

The stock market was quiet ahead of the Fed’s press conference tomorrow where the Fed is expected to raise the Federal Funds rate by 0.25%. The market will be watching for a change in language to determine if the Fed plans to be more aggressive with future rate hikes.

Treasury yields moved higher but were unable to close over 3.1% on the 10-year Treasury bond. For reason still unknown, at 5 am PST, the short-sellers got aggressive. With the speculators so deep in their short positions, they are desperate for any news that could lead to more people selling their bonds. Considering yields are back where they were in May, and short-sellers going all in to get yields back to their prior high, it suggests there may not be any more sellers left.

Today’s 5-year Treasury auction saw an absence of foreign bidders, so a larger amount of the auction when to the securities dealers. Securities dealers do not want to hold these bonds, and as they take on a greater supply, they will look to unload them. The problem for the dealers is that few people want to buy bonds in a rising interest rate market. After all, it is the dealers who have been telling people yields are going to rise.

The dealers have a built-in outlet for their bond holdings – all the short sellers. When yields fall, the short-sellers will be forced to become buyers. It just so happens that the dealers have a supply they will want to sell. Perhaps there is about to be a turn in the bond market as the dealers look to unload their inventories.

Consumer confidence moved higher, reflecting the recent rebound in the stock market. The consumer confidence data has become highly correlated with stock prices. While consumers remain confident, their expectations of an increase in pay are falling. Something is missing in the consumer confidence data because the retail sales data or the buying intentions data do not reflect an overly optimistic consumer.

The large gold miners, symbol GDX, continue to find a wall of sellers at $19. This continues to support a move down unless the Bulls can push through.