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Market Brief – Friday 4/5/19

In overnight trading, President Xi said that the U.S and China trade war is near an end, President Trump mentioned he may place tariffs on Mexico even though he recently signed the USMCA trade agreement and Saudi Arabia said they will likely stop trading oil in U.S. Dollars if the NOPEC bill passes Congress.

Stocks and Treasury yields remained quiet in anticipation of the March Nonfarm Payroll report which showed +196k jobs created against expectations of a +177k print. Revisions for January and February showed a further increase of +14k jobs over the initial report. I was a bit surprised by this report due to the four-month lag in payrolls. Back in December 2018, the stock market was down, retail sales were down and there were fears of a government shutdown looming.

Digging into the report, the BLS birth-death model showed that 51k of the 196k jobs created were completely fictitious. Average hourly earnings rose by +3.2% on an annualized basis against expectations for a +3.4% increase. Hours worked increased from 34.4 to 34.5 hours, which is further evidence of weak wage growth. When breaking down the household survey, the number of full-time jobs fell by -190k while the number of part-time jobs rose by +60k.

The headline jobs number was much stronger than the underlying report. Stocks held their early gains following the report, while Treasury yields fell. Following the report, President Trump called for a reduction in the Federal Funds rate and for the Fed to resume Quantitative Easing. President Trump has made it clear he wants a weaker dollar, but he should be careful about what he wishes for.

Stock prices closed higher of the week as a full 45% of the S&P 500 is blacked out from buying their shares back. With earnings season starting to pick up, stocks are priced for perfection and it’s unlikely they will achieve the lofty earnings numbers needed to keep stock prices up.

Treasury yields continue to disagree with stock prices as 10-year Treasury yields closed at 2.495% and appear to be setting up a run at breaking their March lows. Thirty-year Treasury yields tagged the underside of their resistance level and are also looking to retest their March lows.

Physical gold remains under $1,300/oz and can’t seem to break back into its resistance zone. Since gold tends to follow volatility, the next direction for gold prices is lower. The large gold miners closed over their 50-day moving average for the second day in a row, which appears bullish, if physical gold was following suit.

Oil and gas producing stocks bounced off their support level as investors believe inflation is going to rise along with the global economy. The broad stock market typically tracks this sector, which is not confirming the recent rally in equity prices.

After a big move yesterday, agricultural commodities dipped below their 100-day moving average and down into a support zone where they quickly found buyers. NOAA is reporting more rain for the growing region next week, which will lead to more flooding and likely more crop damage. Based on weather and seasonality, this sector is one of the most undervalued in the market today.