Market Brief – Wednesday 5/8/19

Stocks fell in overnight trading but were rescued by a tweet from President Trump stating China is coming tomorrow to make a trade deal. His tweet contradicts the major news outlets which are reporting that China is unwilling to meet our terms and also contradicts the Trump Administration, which began the official process for raising tariffs on Friday. China does want a trade deal, but they can’t agree to our terms as it would be very detrimental to their economy.

Crude oil Bulls are breathing a sigh of relief as the EIA reported oil inventories as Crude: -3.96mm (+1.9mm expected), Cushing: +821k, Gasoline: -596k, and Distillates -159k. Crude oil trade slightly higher following the report. This draw is helpful for the Bulls but does little against inventories which are at their two-year highs and production which is at a very high level.

Credit card default rates continue to climb and are back at their 2012 level. Banks continue to buy U.S. Treasury bonds to hedge default risk as credit card default rates are relatively high compared to where they normally are going into a recession.

The New York Fed recession model is at 27.5%, which seems low, but when their model passes 30%, a recession is a foregone conclusion.

Physical gold has rallied a bit as volatility rose the past two days. For those bullish on gold, as I am, this is still not the time to buy. Physical gold merely rose to touch its downward trending 50-day moving average where it was rejected. When prices are rejected against a downward trending moving average, it suggests prices are headed lower, not higher in the short term.

China strikes back at today’s $27 billion 10-year Treasury auction as foreign investors dropped their take to 53.3% of the auction. Domestic bidders took 11.5% of the auction and securities dealers were stuck with a whopping 35.2%. Yields rose following the auction. Without foreign buyers, the U.S. economy is now going to start funding its own deficits, which is not good for the broad equity market.

Inside sources are saying the breakdown in trade talks occurred on Friday when China sent an updated agreement marked up in red which changed the outlook of the entire agreement. Those red marks came from those higher up than the negotiating committee. The inability for China to agree to changes the negotiating team agreed to is the reason for the additional tariffs. It is unlikely there will be an agreement before the increased tariffs hit on Friday.

News out of China is reporting that the “armyworm” showed up five months ago and is spreading rapidly. The armyworm loves crops, especially corn, soybeans, cotton and rice, and is expected to hurt production. Further crop damage in China could force them to import more agricultural commodities than expected.

After holding support all day, the S&P 500 was dumped in the last 15 minutes of trading, which erased all of today’s gains. Treasury yields closed lower after 10-year Treasury yields hit their overhead resistance level.