Market Brief – Friday 4/12/19

Stocks and Treasury yields lurched higher as global investors are looking to China for a repeat of 2016 when China injected a massive amount of cash into the global economy. In January, China dumped $685 billion into its economy, which is more than the GDP of Saudi Arabia or 9% of China’s GDP. This new currency accelerated the growth rate of their money supply and helped push stock prices higher.

Before investors celebrate a repeat of 2016 where clean cash entered the global economy, China’s recent currency injection was into supporting more loans. China has so much debt that borrowers are borrowing money to make the interest and principal payments on their existing loans. Someday this will all blow up in China’s face.

JP Morgan and Wells Fargo kicked off the start of earnings season with a surprise to the upside. The first-quarter Fed loan officer survey showed a sharp contraction in lending, which did not show up in the earnings reports for the two banks. In the first quarter, Wells Fargo originated $33 billion in mortgages, which is the lowest amount of new loans since the Great Financial Crisis. Wells Fargo’s mortgage pipeline is predicting twice that number of loans for the months that come due to lower interest rates, even as demand for consumer loans is falling.

Stocks continue to rise in value under very low trading volume as next week a full 80% of S&P 500 companies will be blacked out from buying their shares back. The S&P 500 is rising on less than 10% of the index hitting new 52-week highs, which is not a sign of strength.

Treasury yields gapped up in early trading and found sellers who are eager to drive yields higher to validate a rising equity market. With a large fiscal deficit and a decelerating money supply, it will be a challenge for investors to continue shorting Treasury bonds when yields should continue falling.

Oil and gas producers were jammed higher on the continued hopes for global reflation but met sellers right at its resistance level. Since oil and gas producing stocks tend to follow 5-year Treasury yields, either oil and gas producing stock prices need to fall or yields need to rise.

Agricultural commodities found buyers today which completely reversed yesterday’s loss. The ‘bomb cyclone’ is set to pound the Midwestern region with snow over the next couple days which will make it increasingly difficult for farmers who have been dealing with the damage from the recent historic flood.