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Market Brief – Thursday 4/11/19

Stocks and Treasury yields started the day higher in advance of tomorrow’s official start to first-quarter earnings season. Earnings growth for the first quarter is expected to be -3.9%, but by the fourth quarter of 2019, estimates are for +15.18% and estimates rise each quarter from there! The reason investors aren’t selling going into first-quarter earnings is they believe that stocks are inexpensive.

Initial jobless claims fell -8k from last week’s revised +196k. It is rather odd the Fed is pausing and showing concerns as unemployment claims remain low, since the Fed believes inflation is correlated to the number of unemployed.

While consumer prices remain below the Fed’s 2% target, Producer Prices in March were +2.2% YoY which were higher than expectations of a +1.9% YoY print. Energy costs rose +5.6% YoY, which attributed to the higher than expected increase in the PPI. With producer prices rising faster than consumer prices, corporate earnings will be squeezed.

The storm that is about to hit the Midwestern U.S. is near “bomb cyclone” criteria which is when temperatures and pressures drop rapidly. Inside this hurricane-like storm is a slow-moving snowstorm that is expected to dump up to 12-24 inches of snow in some parts of the farming region. Despite massive flooding damage, investors remain short agricultural commodities.

Today’s $16 billion 30-year Treasury auction saw strong foreign demand, as foreign bidders picked up 60.5% of the auction. Domestic bidders grabbed 14.4%, which left 25.1% of the auction to the dealers. Yields rose following the auction.

Stocks closed the day slightly lower on weak volume and Treasury yields slightly higher after three days of strong U.S. Treasury auctions. Investors continue to believe that global growth and earnings are going to rocket higher in the coming quarters.

Physical gold saw strong selling starting in overnight trading, as the metal closed under $1,300/oz, just under its support level. A break of $1,285/oz should see a retest of the low $1,200’s/oz. The large gold mining ETF followed suit by closing below its 50-day moving average.

The growth rate of the M2 Money Supply rose to +4.21% on an annualized basis. The 6- and 3-month growth rates also increased at a rate of +2.33% and +0.87% respectively. The prior numbers across the board were weak, which is helping boost the growth rate on the money supply. This trend should hold for the next week or two before resuming its downtrend.