Market Brief – Thursday 5/9/19

Unless something changes between now and midnight, the Trump Administration is set to increase the existing tariffs on China from 10% to 25%. Source in China have confirmed the odds of a trade deal at this point are zero. In addition, the FCC has barred China Mobile from providing telecom services in the United States over espionage concerns.

Core Producer Prices were up +2.4% on an annualized basis, which missed expectations of a +2.5% print. Producer prices for goods were up +0.3% and services rose +0.1%. With producer prices running fairly strong, it doesn’t give the Fed much latitude to cut rates.

Equities and Treasury yields were down in early trading and are likely to continue selling. Agricultural commodities are also down, but the USDA has yet to inspect any of the stored grain, so the market is trading as if there has been no disruption in supply. Adding to the pain, computer trading models continue to short this sector, which means when the news flips, prices will jump as the “Smart Money” continues to buy agricultural commodities.

The ISM semiannual survey of capital spending and in the manufacturing and non-manufacturing sectors came out today which shows that CEOs are more interested in buying their company stock back than they are in spending in CapEx. When the buybacks dry up, stock prices will tank.

A meeting has been scheduled for tonight at 5 pm EST for another round of negotiations after President Trump received a pleasant letter from President Xi with an “excellent alternative.” The paperwork is still being processed to increase the tariffs at midnight. Stocks and Treasury yields rose on the news.

Today’s $19 billion 30-year Treasury auction saw strong foreign demand with foreign bidders snapping up 60.5% of the auction. Domestic bidders took a mere 11%, which left securities dealers with 28.5% of the auction. Treasury yields fell following the auction, after rising on hopes of a trade deal.

President Trump’s tweets mostly saved stocks today as the S&P 500 rallied back but ran into stiff overhead resistance. For some reason, investors continue to believe that dropping the 10% tariffs will lead to a massive global economic boom. If only it was that easy.

Treasury yields were down on the day but traded higher as investors continue to fear inflation, which based on the growth rate of the money supply, is not happening. Consumer prices may be rising, but consumer spending power is not keeping pace.

Physical gold continues to be rejected at resistance which still points to the low $1,200s/oz as the next level of support. The large gold mining ETF closed under its 200-day moving average, which is bearish.

The broad M2 Money Supply jumped out of the danger zone as the annualized growth rate increased to 3.95% as the money supply hit a new all-time high last week. The 6- and 3-month growth rates increase to 2.11% and 0.63% respectively. Overall money supply growth remains weak and consistent with weak economic growth.

The stock and bond market awaits the outcome of tonight’s meeting and the implementation of increased tariffs.