Market Brief – Wednesday 7/3/19

Stocks rose in early trading as securities dealers are being forced into buying stocks to hedge their long volatility positions. Dealers often take the opposite end of a trade, and with investors continuously selling volatility, dealers must hedge their long volatility positions by buying stocks.

After rebounding the last few months, the trade deficit in May fell as imports outpace exports. The deficit with Mexico reached its highest level in history in May while both imports and exports from and to China improved.

The ADP Nonfarm Payroll report showed a +102k increase in jobs, missing expectations of a +140k print, while May’s report was revised higher. Small businesses, who are optimistic, shed jobs at the fastest rate since the last recessions as small business employment for firms with 1-19 employees contracted by -61k in the last two months.

U.S. Services PMI rose slightly from 50.9 to 51.5 which shows an increase in the services sector. The ISM Manufacturing and Services PMI are indicating GDP growth is increasing at a 1.5% annualized rate.

U.S. Factory Orders fell -0.7% in May after April’s Factory Orders were revised lower. On an annualized basis, Factory Orders are contracting by -1.2% and are back at their August 2016 level.

The Department of Energy reported crude oil inventories as Crude: -1.085mm (-3.5mm expected), Cushing: +652k (-1.26mm expected), Gasoline -1.583mm (-2.2mm expected), and Distillates +1.408mm (+1.0mm expected). Crude oil fell following the report.

Stocks and bonds closed higher on the day, while gold and crude oil were flat on the day. Agricultural commodities jumped higher after moving back over its 100-day moving average in overnight trading. Investors continue to bet on the Federal Reserve easing monetary policy to turn the global economy around and as a result, are willing to pay a premium to buy stocks as profit margins remain flat.