Market Brief – Tuesday 6/11/19

Asian stocks followed U.S. stocks higher in overnight trading as investors ignored a drop in South Korean exports. South Korean exports fell -16.6% on an annualized basis and chip exports fell -30.8% on an annualized basis is the first ten days of June.

The USDA reported corn plantings reached 83% for the week ending June 9, which is below the five-year average of 99%. Corn emerged is at 62% for the week ending June 9 which is below the five-year average of 93%. Corn conditions are surprisingly high, but below their condition at this time last year.

Soybeans planted reached 60% for the week ending June 9, which is well below the five-year average of 88%. Soybeans emerged is at 34% for the week ending June 9 which is also well below the five-year average of 73%.

Cotton planted is at 75% for the week ending June 9, which is also below the five-year average of 87%. Cotton conditions are on par with last year’s crop. Despite a rather dismal crop report, investors sold U.S. agricultural commodities in overnight trading.

A massive locust infestation hit Italy that has affected 2,000 hectares of farmland leading to what some are saying is the worst invasion in 60 years.

China passenger car sales are down -12.7% on an annualized basis following April’s -16.9% drop, which is now the twelfth straight month of declining auto sales. To boost its economy, China is extending loans for infrastructure projects.

Core Producer Price inflation slowed to +2.3% on an annualized basis, which is ahead of the Fed’s 2% inflation target. The headline Producer Price index fell to +1.8% on an annualized basis, which is slightly below the Fed’s target. Neither number is low enough to spur the Fed to ease if they are truly data dependent, but we will find out on Wednesday next week what the Fed is going to do.

Stocks followed the Chinese stock market higher in early trading and shortly reversed direction in early trading. Treasury yields also moved higher in overnight trading but also fell in early trading.

The NFIB small business sentiment index rose for the fourth month in a row, but since most sentiment indexes tend to follow the stock market, it should come as no surprise that this index rose.

Today’s $38 billion 3-year Treasury auction was met with strong demand as bidders were happy to pay for a lower yield than they could have bought last month. Foreign bidders took a rather high 56.6% of the auction, domestic bidders grabbed 13.4% which left securities dealers with 30.0%. Yields fell across the curve following the auction.

Stock buybacks have been the biggest driver of stock prices, but corporations don’t have an infinite amount of money to continue buying their shares back. In the first quarter, corporations dumped a massive amount of money into buying their stock back, but Goldman Sachs warned today that this trend is unlikely to continue. The next corporate share buyback blackout is scheduled to begin on June 24th where Goldman Sachs estimates based on last year’s data that buyback flows should drop by -35%.

The timing of the upcoming corporate share buyback blackout will start ahead of the G-20 Osaka summit that is scheduled for June 28-29 where President Trump has threatened to increase tariffs on $300 billion of Chinese goods by 25% or more if he doesn’t meet with President Xi. There is still no report from China on if the two Presidents will meet.

Stocks closed slightly lower and Treasury yields closed lower after reversing the early morning gains. Treasury yields are sitting right a support level that historically has seen higher yields, but buyers are stepping in as yields fall.

Physical gold and the mining stocks tried to rally today but couldn’t recover their losses from the past two days after hitting overhead resistance. Agricultural commodities closed over their 100-day moving average, which is a bullish signal.

The API reported crude oil inventories as Crude: +4.85mm (-1.0mm expected), Cushing +2.4mm (-1.97mm expected), Gasoline +830k (+700k expected), and Distillates -3.5mm (+1.1mm expected). Crude oil fell to $52 per barrel following the report.