Market Brief – Monday 6/3/19

Over the weekend, the Trump Administration decided to implement tariffs on imported goods from India to be effective June 5th. China has released a paper detailing its position on the trade war on Sunday morning, which had no new information. China stated they would meet with the U.S., on their terms, which included the removal off all tariffs.

China released a report showing that the Armyworm, a crop-eating pest, has spread across 19 providences and is affecting 90,000 hectares of grain production. Parts of the Midwest are flooding as levees are breaking, which are wiping out crop production in parts of Arkansas and Iowa.

South Korean exports fell -9.4% and imports fell -1.9% on an annualized basis. Their Manufacturing PMI came in at 48.4, which means their manufacturing sector is contracting.

In addition to South Korea’s manufacturing sector contracting, Taiwan, Malaysia, and Japan’s manufacturing sectors also contracted. Only Vietnam showed a slight expansion.

Mexico sent a delegation to Washington D.C. to discuss the 5% tariffs that are set to start June 10th on $360 billion of goods unless the illegal border crossings are stopped. Meetings are scheduled for Wednesday.

In overnight trading, the S&P 500 tagged a near-term support level and bounced higher. U.S. Treasury bonds yields headed lower and also saw a slight bounce higher, but yields were unable to hold their move higher as investors begin to worry about a recession.

The ISM Manufacturing PMI came in at 52.1, which denotes a slight expansion in the manufacturing sector, but it came in below expectations of a 53 print. This is the slowest growth for our manufacturing sector in two-and-a-half years.

U.S. Construction Spending was flat in April despite predictions of a +0.3% MoM increase. On an annualized basis, construction spending contracted at a -1.2% rate. Construction spending usually contracts during a recession.

Bullard, a member of the Federal Open Market Committee (FOMC) spoke today and said the Fed may need to cut the Federal Funds rate to lift inflation. The problem for the Fed is the tariffs, which is causing an increase in consumer-price inflation. It’s entirely possible that if the Fed remains “data dependent,” that they may not be able to lower interest rates.

The broad stock market is on the edge of a cliff, peering over the edge. The S&P 500 held its support level as buyers stepped in during early trading. The Nasdaq-100 didn’t fare so well as reports of antitrust filings are coming for Google, Apple, and Facebook. All major stock indices are trading below their 200-day moving average, which in the past has led to a large decline in stock prices.

Treasury yields continue to slide lower despite the belief that inflation is about to surge. Ten-year Treasury yields broke through support which suggests yields are going to revisit their all-time lows. Falling Treasury yields will lead to lower stock prices.

Physical gold is getting bid as investors perhaps prematurely are chasing a risk-off event. Emerging Markets stocks are not confirming the move higher in gold or the mining stocks, which mostly appear to be moving between their support and resistance zone. While this could be the beginning of a major move higher, it’s still a bit too early to confirm as gold and the miners are all solidly inside an overhead resistance zone.

Despite reports of flooding over the weekend, agricultural commodities held their 100-day moving average to the penny. For this sector, the 100-day moving average is critical and holding here would likely bring in more buyers.