Market Brief – Wednesday 2/6/19

Global equity markets had a rather benign response to the State of the Union address with most major stock and bond markets flat until the European open. European stocks headed lower along with Treasury yields.

German Factory Orders fell for the seventh consecutive month and are showing a large -7% year-over-year drop, which is the worst print since 2012. Germany is the largest exporter in the European Union, and when their economy slows, so will the rest of Europe.

The US trade deficit narrowed in November after hitting a record in October, as both imports and exports fell. Since economic growth is often tied to trade, weaker trade numbers aren’t a good sign.

The EIA posted crude inventories as Crude: 1.263M Cushing: 1.441M Gasoline: 0.513M Distillates: -2.257M, which is giving oil Bulls a brief sigh of relief. The drop-in distillates are likely due to the arctic chill that hit the northern states, but the rise in inventories is causing some concern that there might be a glut in oil. Traders don’t realize the price of oil is tied to the Monetary Base, which the Fed is actively shrinking. Oil traded slightly higher after the report.

After yesterday’s strong 3-year Treasury auction, expectations were high for today’s 10-year auction. Foreign bidders backed off a bit and took 59.5% of the offering. With global dollar liquidity tied to foreign Treasury holdings, weaker-than-average demand is not a positive sign for the global economy. Direct bidders took 12.2%, leaving dealers with the largest supply since October at 28.4% of the offering.

Stocks and Treasury yields closed slightly lower on extremely low volume. Physical gold dropped, along with the mining stocks. I expect them both to confirm one of the major moving averages to confirm the upward trend.

Agricultural commodities nudged back over their support zone and are right under two of their major moving averages. Oil and gas producers traded lower and are hovering just over their support zone and their 50-day moving average, which I expect the price to break to the downside.