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Market Brief – Thursday 10/17/19

In overnight trading, Singapore electronic exports for September fell -24.8% on a year-over-year basis after falling -25.9% in the prior month, which suggests the global economic slowdown is not stopping.

Bullish fever remains strong by investors as they tried to bid stock prices back near their all-time highs despite continued overnight dollar funding problems that occurred prior to the bursting of the dot-com bubble. Treasury yields followed stocks higher but were unable to hold their gains in early trading.

The U.S. Treasury reported that Major Foreign Holders of Treasury Securities, mostly foreign central banks, purchased $225.6 billion of Treasury securities in August, which is the largest single-month purchase in the past twelve months. Foreign purchases of Treasury securities are critical to restoring World Dollar Liquidity. This large purchase puts a ceiling on Treasury yields since foreign central banks are long-term holders of U.S. debt and should be considered the smartest of the “Smart Money.”

Housing starts fell -9.4% and Building Permits fell -2.7% in August as the year-over-year rate of change for housing starts sliding to +1.6% and building permits slowing to +7.7%. Building permits indicate optimism by home builders who are hoping low mortgage rates will entice buyers.

The New York Fed came to the rescue again as overnight liquidity problems persist. The NY Fed accepted offers for $73.5 billion of overnight repo loans and $30.65 billion of 15-day repo loans.

Industrial Production contracted for the first time since President Trump took office by falling -0.1% on a year-over-year basis and -0.4% in September. Manufacturing output fell -0.5% in September and remained in contraction on a year-over-year basis by falling -0.9%. Capacity utilization, a strong indication of demand, fell to 77.5% from 77.9% in September.

The Department of Energy reported crude oil inventories as Crude: +9.28mm (+3.0mm expected), Cushing: +1.276mm, Gasoline: -2.562mm, Distillates: -3.823mm. Crude oil rose following the report.

The S&P 500 has been trying to break the psychological barrier at 3,000 points, but in the last 15 minutes of trading, sellers came to prevent the Bulls from claiming their prize. After facing a barrage of selling for the past seven trading days, Treasury bond prices appear to be putting in a bottom even though the incoming economic data has not warranted higher Treasury yields. With plenty of open overhead gaps, Treasury bond prices should make an attempt to revisit their recent all-time highs in the next couple of weeks.