Market Brief – Wednesday 8/7/19

In overnight trading, three foreign central banks cut interest rates. New Zealand cut 50 basis points, double expectations, Thailand cut 25 basis points, was not expected to cut, and India cut by 35 basis points, an odd amount. Treasury yields fell in overnight trading and now the entire U.S. Treasury yield curve is inverted, or below, the upper bound of the Federal Funds Rate.

U.S. equity futures fell in overnight trading, but investors once again jumped in early to buy the dip, as investors are convinced that stock prices are headed higher. The S&P 500 has an unfilled gap at 2,914, which based on the last couple years of trading, will likely be filled before equity prices follow Treasury yields lower.

The EIA reported crude oil inventories as Crude: +2.39mm (-2.80mm expected), Cushing: -1.504mm, Gasoline: +4.44mm (-1.2mm expected), and Distillates: +1.529mm (+200k expected). Crude oil prices broke support and fell following these unexpectedly large builds.

Today’s $27 billion 10-year Treasury saw weak foreign demand as yields fell to their lowest level since August 2016. Foreign bidders took 55.7% of the auction and domestic bidders took 13.6% of the auction, which left securities dealers with 30.7% of the auction. Yields rose following the auction. The poor results of this auction are not a huge surprise given the recent rally in Treasury bonds. This should create an opportunity for those who missed the rally to buy in before the big plunge in yields.

Stocks rallied from their pre-market drop as U.S. investors remain convicted that stock prices are going to continue rising, even though they are marginally higher than they were in January 2018. Bond sellers came in after today’s weak 10-year Treasury auction to push yields back up. Remember, investors who short the Treasury bond market do so to generate capital to buy stocks.

Physical gold finally ran into resistance, which silver mining stocks have known about for some time. After falling in early trading, investors flocked back to crude oil as Saudi Arabia pledged to keep prices up. Agricultural commodities rose off their early lows despite reports that China will not purchase any more U.S. agricultural commodities regardless of how high the tariffs go.