Market Brief – Monday 1/7/19

With the government in partial shutdown, many of the departments that compile and release the economic indicators are affected. The stock market continued its rally from December 26 with news from the ISM that the services sectors also slowed in December, which was its third-largest decline since the Great Financial Crisis.

The US-China trade talks are expected to conclude tomorrow and while investors are hoping for some good news, nothing is expected to change. The meeting is between mid-level delegates on both sides.

Equity Bulls continue to bid the market higher on the renewed belief the Federal Reserve will come to the rescue the next time stock prices fall, even though there is no indication the Fed will. With the monetary lags running between 14-18 months, any changes the Fed makes today, won’t be felt by the economy for some time.

With investors now pricing in a Fed ‘put,’ the weekly Federal Reserve balance sheet data will confirm or deny if the Fed is providing liquidity to the markets as they did when Janet Yellen was the Fed chairman.

The broad equity indices closed higher today with trading volumes tapering, suggesting buyers may be getting exhausted. Ten-year Treasury yields rose to just under 2.7% as short-sellers are trying to push yields higher, even though the largest banks made their largest one-month purchase of Treasuries in December.

This week will see three sizable Treasury auctions which should hurt liquidity as the equity market is already thin on buyers.

Both physical gold and the gold miners were rejected at their overhead resistance levels, which should set for a move lower to a prior support level or a longer-term moving average. Rallies rarely start without confirmation of the trend, which would be nice to see given the volatility associated with this sector.

Agricultural commodities got a bit of wind in their sales on news China will buy 180,000 tons of soybeans and a weaker U.S. dollar. With this sector being heavily shorted, it shouldn’t take much to get a rally going. Prices rose to tag an overhead resistance level and then sold off slightly.