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Market Brief – Wednesday 6/3/20

Stocks rallied in overnight trading after China announced it would begin a Quantitative Easing program, which sent investors panicking over inflation and global government bond yields higher. Stocks and Treasury yields pressed higher as investors are daring the Fed to increase the pace of its QE program to lower Treasury yields.

Mortgage applications fell -3.9% from last week with purchase applications rising +5.3% and refinance applications falling -8.6%. While new applications are a sign of optimism, applications don’t indicate if the application is contingent on sale or if it is a brand new purchase.

Investors cheered the ADP Nonfarm payroll report as it reported -2,760k jobs lost in May instead of the expected -9 million. While investors are hoping the peak of unemployment is in, the second round of layoffs is just beginning.

The Markit Composite PMI for May contracted for the seventh month in a row and the Services PMI also contracted for the seventh month in a row.

The more official ISM Non-Manufacturing PMI painted a slightly different picture as it contracted for the second month in a row for May, but at a slower pace. Inside the report, business activity, new orders, and employment further contracted while prices increased slightly.

Factory orders fell -13.0% in April and excluding transportation fell -8.5%. Durables excluding defense fell -16.6% in April.

The Department of Energy reported crude oil inventories as Crude: -2.077mm (+3.038mm expected), Cushing: -1.739mm (-1.765mm expected), Gasoline: +2.796mm (+1.000mm expected), and Distillates: +9.935mm (+2.686mm expected). Crude oil fell following the report.

Investors continued to chase stock prices higher as the fear of missing out is driving a wild bullish stampede in the equity markets. Treasury yields closed higher after overnight selling from the fears China’s QE program will be inflationary. Treasury bond bulls stepped in and put a stop to the 3-week selling spree in Treasuries, suggesting this could be a bottom.