Market Brief – Monday 11/05/18

Asian equities started the trading week down as China’s Caixin Composite PMI (factory survey) fell to its lowest level since February 2016, when the factory survey was on the edge of contraction. This is an indication we are winning the “trade war,” and also a sign that the Fed’s monetary tightening is affecting the global monetary system.

European and U.S. equities shrugged off the Asian routing as both markets attempted to move higher in early trading. Over the weekend investors were quick to point out how this week’s $83 billion in debt issuance by the U.S. Treasury will not find any buyers. Foreign investors have shied away from shorter-term Treasuries but have been strong buyers of longer-dated maturity bonds. Foreign investors know there is a global slowdown occurring and the best way to hedge that is through long-maturity bonds.

The Markit Manufacturing survey moved slightly higher while the broader ISM Manufacturing survey moved slightly lower. Both services PMIs were higher, indicated the service sector is more optimistic than the manufacturing sector.

Foreign bidders took an above-average 49% of today’s 3-year Treasury auction and domestic bidders took a mere 3% auction, leaving 48% to the securities dealers. Domestic investors continue to step back from shorter-term Treasury auctions as the Fed continues to commit to further rate hikes.

The stock market moved higher, but trading volumes were 20% less than average. The big traders were quiet going into tomorrows midterm elections. Ten-year Treasury yields moved down in overnight trading but ticked up slightly as stocks rose. Yields still closed lower on the day.

Physical gold was down a smidge and the gold miners were rather volatile all day but closed lower. Agricultural commodities tried to move higher but ran into sellers. As sellers continue to exhaust themselves, buyers will drive prices higher.

Corporations have spent $7 trillion on dividends and corporate share buybacks, representing 40% of the gains in the S&P 500 since the Great Financial Crisis. In addition, corporations have added $2 trillion of debt to their balance sheets, which will become a problem during the next recession.