Market Brief – Wednesday 4/3/19

Last night the Financial Times reported a trade deal was 90% complete and the last 10%, which is the hardest 10%, should be wrapped up fairly soon. Even though the Financial Times chose not to disclose its sources, the computer algorithms read the headline and within seconds drove U.S. equity futures higher. This morning Larry Kudlow said, “we’re not there yet on a trade deal with China, we hope to get closer this week.” China hasn’t confirmed a deal is close.

The ADP employment report showed +129k jobs created in March against expectations for +175k jobs created. The construction sector lost jobs and small businesses shed workers.

Following the ISM Manufacturing reports, U.S. Services PMI fell to their lowest level since August 2017, which was led by a collapse in New Orders.

The EIA reported crude oil inventories as Crude +7.23MM (-800k exp) and the biggest build since January 2019, Cushing +201k, Gasoline -1.781MM and Distillates -1.998MM. Crude oil fell following the report, then rallied. Crude oil should not be building due to refinery maintenance season, so this report should be considered bearish for crude oil prices.

Mortgage applications rocketed higher by +18.6% on a week over week basis, as lower mortgage rates have spurred refinances. Mortgage purchase applications rose a mere +3.4%. Interestingly enough, this mini-refinance boom is being led by adjustable-rate mortgages.

Forty-percent of companies who are buying their stock back will enter their blackout period today, which is following one of the lowest trading volume days in the past twelve months. The Federal Reserve is scheduled to destroy $22.4 billion of currency from their U.S. Treasury portfolio today, which should be bearish for both stock prices and Treasury yields.

Equities gave up their early gains but managed to close higher, while Treasury yields traded flat on the day, but closed higher due to the overnight news about a near-term resolution to the trade war. Investors don’t realize that an end to the trade war will be disinflationary, not inflationary.

Physical gold traded flat on the day and the large gold mining stocks tagged the bottom side of their 50-day moving average and failed. The risk remains to the downside for both.

After reporting a large crude oil build, crude oil traded slightly lower on the day, while oil and gas producer stocks traded lower. The oil and gas producer ETF broke through its 100- and 50-day moving averages to the downside before closing right on its 50-day moving average and just above a support channel.

Agricultural commodities closed over their 50-day moving average and appear to be working their way higher. NOAA reports more rain for the farming region in the next two weeks as more flooding is expected.