Market Brief – Tuesday 8/6/19

Stocks rallied in pre-market trading as China halted the devaluation of their currency. While many believe a full-blown currency war is about to erupt, due to the extreme monetary policy measures over the past ten years, China can’t continue devaluing their currency without the risk of blowing up their own economy.

The early morning euphoria started to fade as stocks and Treasury yields fell. Investors ran to gold first on hopes for large rate cuts and then as a hedge against a currency war, but as commodity prices fall, so too does inflation. When inflation and yields fall together, it is not a bullish indicator for gold.

Small oil and gas producing stocks broke their support level from 2016 which suggests the pain for these stocks is only beginning. Crude oil is holding over $55 per barrel ahead of tonight’s API inventory report. Keep a watch on $54 per barrel, where if broken, should see further selling.

President Trump insinuated that he will be taking care of America’s farmers as China confirmed they will cease all purchases of U.S. agricultural commodities. Although this doesn’t prevent China from indirectly purchasing our crops through mutual trading partners. Agricultural commodities were down in early trading as the U.S. Dollar rallied off its 50- and 100-day moving averages.

Today’s $38 billion 3-year Treasury saw strong demand as yields fell to their lowest level since August 2017. Foreign bidders took 46.7% of the auction and domestic bidders took 19.3% of the auction, which left securities dealers with 34% of the auction. Yields fell slightly following the auction.

After stocks dipped in early trading, investors shrugged off concerns of an escalating trade and currency war and bought stocks. The S&P 500 broke over its February 2018 peak where it found support in late trading. While most investors are eyeing stocks, Treasury bonds continue to rise and are near a major Bull market breakout.

Small oil and gas producing stocks closed at their lowest level in more than 20 years as crude oil looks like it is going to have a major sell-off when prices break below $53 per barrel. Agricultural commodities dipped but ran out of sellers as this sector looks to put in a double bottom.

Physical gold is facing overhead resistance at its May 2011 levels, but be forewarned, if stock prices start to fall, speculators will dump gold. The mining stocks didn’t follow gold higher today as Emerging Markets stocks continue to signal a large correction ahead for gold.

The American Petroleum Institute reported crude oil inventories as Crude: -3.43mm (-2.80mm expected), Cushing: -1.6mm (-2.4mm expected), Gasoline: -1.1mm (-1.2mm expected), and Distillates: +1.2mm (+200k expected). Crude oil prices barely budged after the report.