Market Brief – Monday 8/5/19

In overnight trading, China responded to President Trump’s threat of further tariffs by devaluing its currency against the dollar. Further tariffs against China will push U.S. consumer prices higher, as the next potential increase is on imported consumer goods. Asian equities fell along with U.S. equity futures and Treasury yields as investors come to grips with the fears of a currency war.

In what was expected to be a quiet week from an economic data standpoint is anything but as equities sell-off and Treasury bonds rally. For the past two years, the trade war has been bullish for equities, but now it appears it may not be as the trade war is turning into a currency war.

Reports this morning indicated China will cease all U.S. agricultural commodity imports despite taking delivery of a large soybean order. Agricultural commodities fell to their May lows where buyers immediately jumped in. From a technical perspective, prices just formed a double bottom, which is a bullish signal.

The USDA has been using satellites to determine crop progress, but on August 12th, they are expected to release an acreage report detailing how much has been planted. Corn and soybeans plantings have plummeted, but keep in mind, Wall Street is pricing a banner year for agricultural commodities.

Stocks closed down strongly today as volatility spiked higher. Trading volumes were elevated but not high, suggesting that this drop in prices could go much deeper. Treasury yields tumbled and are quickly headed towards their all-time lows. Physical gold was up slightly, but the mining stocks saw some late day selling. With Emerging Markets stocks headed lower, gold should be falling from its recent highs.

Crude oil closed down slightly ahead of this week’s inventory reports as oil and gas producing stocks are pennies away from their two-year lows. Agricultural commodities ran out of sellers today and buyers managed to get this sector into the green by the close.