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Market Brief – Tuesday 8/13/19

Equities dipped in overnight trading as the German economy continues to slow and tension in Hong Kong remain high. Treasury yields also fell slightly in overnight trading ahead of this morning’s Consumer Price Index release.

The Consumer Price Index (CPI) rose +0.3% in July which matched expectations. On an annualized basis, CPI rose +1.8% and Core CPI excluding food and energy, rose +2.2% as the tariffs are finding their way into consumer prices. Energy and rents attributed to most of the increase in the CPI.

Physical gold fell in early trading along with the mining stocks as gold was frontrunning inflation-adjusted 10-year Treasury yields. Normally gold follows inflation-adjusted yields, so the recent move in gold is a bit premature. With banks holding the second-largest short position in history on gold, look for gold to pull back just like it did in 2016 when banks held the largest short position in history.

Stocks jumped shortly after market open after news broke that trade representatives from the U.S. and China will have a phone call in two weeks time. The USTR followed this report by confirming the 10% tariffs set for September 1st are still on, but certain products will be exempted until December 15th.

Apple’s stock rallied in following the news that cell phones will not be subject to the September 1st tariffs which drove the S&P 500 from its support level all the way to its resistance level and 50-day moving average. Apple’s earnings and iPhone sales peaked back in 2015, so investors are hoping that consumers will spend big on Apple products for the holiday season even though Apple is not releasing a new iPhone until next year.

The S&P 500 failed to break resistance today as China learned the easiest path to a trade victory is lower U.S. stock prices. Treasury yields were slightly higher on the day but found a steady stream of buyers to hold up bond prices.

Agricultural commodities tried to rally in early trading on overnight reports from China that the Fall Armyworm has infiltrated 21 of their providences and is decimating crops along the way. Investors continue to short U.S. agricultural good despite the worst flooding in history and the lowest plantings since 1938. Harvest season will start soon and run through October, which should prove that production is not as rosy as the USDA believes.

Crude oil rallied ahead of today’s American Petroleum Institute crude oil inventory report. The API reported crude inventories as Crude: +3.7mm (-2.5mm expected). Crude oil fell following the report.