Market Brief – Wednesday 5/15/19

Stocks shrugged off their overnight lows as President Trump said he would delay automobile tariffs against Europe as trade negotiations with the EU and Japan are set to start. Keep an eye on the Treasury bond market, as yields on 10-year Treasuries tagged their one-year lows in overnight trading. Treasury yields continue to press lower and threaten a massive short squeeze out of stocks.

The economic news out of China last night was ugly. March retail sales rose +7.2% on an annualized basis but missed expectations of a +8.7% print. This is the lowest growth rate for Chinese retail sales since May 2003. Industrial production fell in March to +6.2% YoY and fixed asset investment also slowed to +6.1% YoY.

March U.S. Retail Sales fell -0.2% MoM and after stripping out automobile sales, retail sales fell -0.1% MoM. Adding to the disappointing U.S. data, Industrial Production fell -0.5% in March. Factory Capacity Utilization fell to a 14-month low of 77.9%.

The EIA reported crude inventories as Crude: +5.431mm (-1.3mm expected), Cushing: +1.805mm (+1.3mm expected), Gasoline -1.123mm (-300k expected), and Distillates +840k (-1.0mm expected). Crude oil traded lower after the report and then rebounded its losses in early trading.

Another storm is headed towards the Midwest and farmers are reporting this will not be good for Corn or Spring Wheat plantings. Some farmers have planted, and others are waiting to, but this rain could damage the recently planted crops and keep the other farmers from planting. This just adds to the bullish outlook for the agricultural commodity sector.

Stocks traded very technically today, as they found support and rallied despite weakening economic news. The markets make the news, the news does not make the markets, so the view now is that investors believe either the Fed will come to the rescue or that stocks are now at a new permanently high plateau.

Treasury yields continue to ignore stocks as ten-year Treasury yields are very close to breaking down from their March lows. At some point, lower Treasury yields will pull stock investors out of the equity market since lower Treasury yields are an indication of tightening financial conditions.

The U.S. Treasury released the latest data on foreign-held Treasury securities, which some will quickly point that countries like China are shedding their Treasury holdings. But other countries are buying and compared to last month, foreign-held Treasuries increased by $88 billion. While American investors are buying stocks, foreigners, the “Smart Money” and large U.S. banks are buying bonds.