Market Brief — Thursday 9/27/18

Asian and European equities were down following yesterday’s Fed rate hike. Foreign equities have been falling as the Fed tightens, which is what is supposed to happen. U.S. equities quickly shrugged off yesterday’s post FOMC drop as stocks quickly recovered from yesterday’s losses. Treasury yields were higher in early trading but were flat in overnight trading.

Pending home sales fell for the fourth straight month and are now back at 2014 levels. Thirty-year mortgage rates are close to 5%, which is historically low, but likely high enough to continue to drive buyers away.

Durable Goods orders jumped this month, but mostly on aircraft orders. Stripping out the transportation aspect of the report, to determine what businesses are doing, the proxy for business spending fell 0.5% last month. Meanwhile, defense spending was up 44%.

Treasury yields pushed higher into today’s 7-year Treasury auction but fell immediately after. While experts say this was a poor auction, foreign bidders took 62% of the offer. Foreign investors continue to be biased towards longer-maturity Treasuries.

Around 10 am PST, stocks began to fall and while they closed higher on the day, the selling persisted up to the closing bell. After moving higher in early trading, Treasury yields closed lower on the day with strong volume. Increasing volume from a price bottom is indication buyers are coming back.

Physical gold finally broke out of the $1,200/oz range and headed down. Gold is often sold by investors who need to sell, not those who want to sell. Investors continue to prop up stock prices and short Treasuries, and the money to do that has to come from somewhere. Gold sold off going into the last recession as investors faced margin calls and forced selling. While that may not be happening yet, investors are highly leveraged in this market.

Both gold and silver miners dipped on the day as Vanguard continues to liquidate positions from its gold mining fund. Even though July and August usually signal the bottom for this sector, a large seller can postpone that move. Experts in this space suggest once the selling from Vanguard is done, a rally may ensue.

Agricultural commodities triple-bottomed in the month of September. There is now a clearly defined price point where buyers are happy to buy. To avoid a short-squeeze, speculators will need to try to drive agriculture prices lower. Should they fail, the long-awaited rally may be at hand.