Market Brief — Friday 9/28/18

Asian equities moved higher, but European equities tumbled on news from Italy that they are targeting a budget deficit of 2.4% of GDP, which is higher than expected. Italian stocks and bonds got hammered. U.S. investors don’t seem too concerned about what is going on overseas as equities moved higher in the morning.

Ten-year Treasury yields fell overnight and rose in early trading as short-sellers attempted to flush out yesterday’s buyers. After checking in with yesterday’s closing price, yields started falling again. The Treasury short-sellers are quickly finding themselves on the defensive as bond Bulls see an opportunity to squeeze out the record amount of short positioning.

Incomes rose +0.3% MoM but missed expectations of a +0.4% rise. Spending rose at +0.3% MoM as this represents the seventh straight month were spending has outpaced incomes. This trend is visible in the revolving credit data, which has been running at a +9% YoY rate. The Fed’s coveted inflation gauge, or Core PCE, ticked down slightly to a +2.0% YoY rate. As Chairman Powell mentioned in his press conference on Wednesday, inflation remains elusive.

Stocks were down slightly today and Treasury yields were mixed on the day. Treasury short-sellers were forced to aggressively sell today as Treasury yields are indicating that another top is in place.

One technical trader on FinTwit summed up the Treasury market by saying either the Bears are finally going to get the breakout they want or this is the mother of all topping patterns (in reference to yields). Looking at a two-year chart, it’s clear the long-bond is in a major bottoming pattern. I’ll cover this in more detail in the charts and video.

Physical gold rallied a little and the gold miners tried to but were rejected once again. As long as there are more sellers at this point, prices are likely to fall until a larger pool of buyers is found.

Agricultural commodities, which I am covering in depth in this week’s weekly update, held their triple-bottom again. Unless the short-sellers can drive prices lower, a bottom may be in place. Considering there is weather-related crop damage in other parts of the world, and yields and production are falling, prices should start rising soon. Not to mention we are heading into a solar minimum, which has been a historically strong time for crop prices.