Market Brief – Thursday 2/6/20

Stocks rose in overnight trading after China cut tariffs on 1,717 imported U.S. goods by 50% and held those gains in early trading as computer-traded models are taking extremely leveraged equity positions due to a drop off in volatility from their two-year lookback algorithms. Treasury yields were up slightly in early trading as speculators look to continue their two-day run of selling Treasury securities.

With two-thirds of China’s economy shutdown, China lowered tariffs on a small number of imported goods and the Trump administration followed by lowering some of the punitive tariffs. Tianjin, a city 70 miles east of Beijing, has restricted entry and exit from residential compounds as China attempts to control the outbreak of the Coronavirus. To make matters worse, China is rejecting imports of natural gas and has requested a postponement of imports of copper, crude oil and soybeans.

German factory orders fell -2.1% in December and -8.7% from this time last year, a drop not seen since the end of the Great Financial Crisis.

The New York Fed accepted bids for $46.75 billion in overnight dollar loans and offers for $30 billion in 14-day dollar loans against bids $57.25 billion, making this the second oversubscribed term loan in quite some time. The New York Fed also purchased $1,601 billion of inflation-protected securities against offers of $4,169 billion.

Initial jobless claims fell to 202k and the 4-week moving average for jobless claims slowed to 211.75k while the ongoing continuous jobless claims, the most accurate of the three, rose to 1,751k. The continuous claims suggest yesterday’s ADP Nonfarm payroll report was overestimated.

Stocks and Treasury bonds rose as investors on both sides of the market hold different views of the Coronavirus. Stock investors believe it is contained, while bond investors believe the worst is yet to come. Crude oil fell on fears OPEC+ won’t cut output enough and closed at $51 per barrel after bouncing off of support at $50 per barrel. From a technical perspective, failure to hold $50 per barrel suggests crude oil is headed to $42 per barrel.