Market Brief – Wednesday 2/5/20

Stocks and Treasury yields jumped in overnight trading on unverified reports a team at Zhejiang University found an effective drug for the Coronavirus. The World Health Organization later reported there are “no effective remedies” for the Coronavirus. Stocks rose in overnight trading to their one-month high while Treasury yields backed up into a strong zone of overhead resistance and closed an overnight gap from early last week.

MBA Mortgage Applications rose +5.0% for the week with purchases falling -9.5% and refinances rising +15.3% as homeowners tap their equity and extend their payments. When refinances rise faster than purchases, it puts downward pressure on mortgage rates since banks have to adjust the maturity of their hedges to match the length of the refinances.

The January ADP Nonfarm payroll report smashed expectations by showing the largest gain in jobs since 2015 by reporting +291k jobs created. According to ADP, milder weather contributed to the increase.

U.S. imports rose +2.7% and exports rose +0.8% in December marking the first reduction in the trade deficit since 2013. Crude exports, which are at a record high, contributed to the increase in exports.

The Market Services PMI rose to 53.4 from 52.8 and the ISM Services PMI rose to 55.5 from 54.9 in January. Business activity, new orders, employment, and imports led the report. The backlog in orders continues to shrink as companies appear to be staying ahead of demand. Optimism was rising following the China-U.S. trade deal, but ahead of the Coronavirus.

The New York Fed accepted bids for $47.5 billion of overnight dollar loans. The New York Fed purchased $7,501 billion of Treasury Bills against offers of $25,003 billion making the offer oversubscribed by 3.3 times.

The Department of Energy reported crude oil inventories as Crude: +3.355mm (+2.831mm expected), Cushing: +1.068mm, Gasoline: -91k (+2.57mm expected), and Distillates: -1.512mm (-14k expected). Crude oil rallied over $51 per barrel following the report.

Stocks closed near their all-time highs as energy company stocks rebounded after being oversold and on a small gasoline inventory draw. Treasury yields closed higher across the curve as speculators are forced to defend their deep speculative short positions after Treasury bonds threatened to break out into a Bull market late last week.