Market Brief – Wednesday 6/5/19

In overnight trading, the trade war is affecting China as their official manufacturing PMI gauge contracted for May. China’s services PMI also took a hit and fell from 54.5 to 51.8, which is still expanding, but at a slower rate.

ADP employment growth fell to its 9-year lows as ADP reported +27k jobs created for May against expectations of a +185k print. Goods-producing employment fell -43k in May which matches the same decline in goods-producing employment back in December 2007. It was only a matter of time before employment growth slowed as retail sales data has not been strong enough to spur further hiring.

U.S. Services PMI slid to its February 2016 level while U.S. Services ISM rose to its January 2019 level. While the two surveys contradict each other, the PMI survey is more closely following the manufacturing sector lower.

Stocks opened the day higher following yesterday’s massive short squeeze as computer algorithms bought the most shorted stocks to trigger a rally in equities. Ten-year Treasury yields have been flirting with 2.1% as they are facing a massive Bear market rally should yields continue to fall.

Quant computer models shifted from a short position to a long position after last night’s close which is helping boost stock prices despite today’s weak economic data. Be aware, the models could just as quickly flip back to short should stock prices resume their downward trend.

The EIA reported crude oil inventories as Crude: +6.771mm (-2.0mm expected), Cushing +1.791mm (-800k expected), Gasoline +3.205mm (+500k expected), and Distillates +4.572mm (+600k expected). Crude oil fell below $52 per barrel following the report.

Physical gold finally decided to play catch-up to the mining stocks which are rallying as if there are no sellers in the market, which is rather surprising after gold and the mining stocks recently exhibited a strong reversal pattern. While this may seem like the start of a monster rally in gold, neither Emerging Markets stocks or the U.S. Dollar is confirming this move, plus investors tend to sell gold on the onset of stocks falling. This move seems slightly premature, but it is rejected, look for gold to fall between $1,200-40 per ounce where it would look like a strong technical buy.

Stocks were boosted as algorithms chased short sellers and computer models bought stocks. Ten-year Treasury yields closed slightly higher on the day, but are facing resistance which is keeping them from moving higher. Oil and gas producing stocks were hit hard today following the EIA’s report about a rather large weekly crude oil build and agricultural commodities sold off a bit as the dollar strengthened.