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Market Brief – Thursday 6/13/19

U.S. equity futures fell in overnight trading but quickly rebounded before markets opened as investors looked to buy stocks before they break out to new all-time highs. Or at least that is what investors are hoping for. The broad equity indices held a support level that dates to January 2018, which from a technical perspective, is bullish.

Crude oil is also trading in a very technical manner, despite reports of two oil tankers being hit by torpedoes. Yesterday crude oil hit a support level, and with many investors and speculators long crude oil, they had no choice but to buy in hopes other investors would join them. Remember, the markets make the news, the news does not make the markets.

Import and export prices fell as China is exporting deflation at a level not seen since 2007. Import prices fell -1.5% on an annualized basis. While tariffs lead to higher prices, they also lead to lower sales. In the short term, tariffs are inflationary, but in the long term, they are deflationary as consumer demand falls.

The Ports of Los Angeles and Long Beach reported their seventh consecutive month of declining export volumes. The Port of Long Beach saw exports drop -19.5% in May, as experts believe retailers are done pulling forward inventory ahead of the tariffs, which are now in force. In a recent report from Beacon Economics, retailers and warehouses are full of inventory with vacancy rates at a scant 1%. Rising inventories are not bullish for stocks, as investors will likely learn as second-quarter earnings season is set to start in a few weeks.

Today’s $16 billion 30-year Treasury auction was met with very strong demand. Foreign bidders took a healthy 60.8% of the auction, domestic bidders grabbed 15.1% which left securities dealers with 24.1%. Yields fell across the curve following the auction. Foreign investors are buying long-term U.S. government bonds while U.S. investors are buying short-term government bonds. U.S. investors think the economy is going to rebound soon, while foreign investors think we are headed into a global recession.

The trade-weighted U.S. Dollar has held support against its 200-day moving average, which suggests the dollar is likely headed higher. A rising dollar is not good for exports or the domestic economy, which could use a weaker dollar to relieve some economic pressure as financial conditions tighten.

Stocks closed higher on another day of extremely light trading volume as bond yields headed lower after three consecutive days of strong U.S. Treasury auctions. Ten-year Treasury yields are sitting right on an interim level of support at just under 2.1%.

Oil and gas producing stock rebounded today as investors look back to a support level not seen since early 2016. With crude oil inventories building, this sector will be hard-pressed to rally without some significant inventory draws.

Physical gold rallied back up into resistance as investors who are bullish on gold are buying after a well-respected hedge-fund manager said he recently bought gold. The mining stocks were equally enthusiastic as they ran into overhead resistance.

The annualized growth rate of the M2 Money Supply increased slightly to 4.32%, which was expected based on the increase from last week’s data on the six- and three-month growth rates. The 6- and 3-month growth rates also slightly increased to 2.48% and 1.56% respectively.

Larry Kudlow reiterated that China may face additional tariffs if President Xi doesn’t meet with President Trump at the upcoming G-20 Osaka summit. Kudlow confirms there hasn’t been a response from China to make arrangements for a meeting.