Market Brief – Friday 3/22/19

In overnight trading, German and Eurozone Manufacturing PMIs continued to contract. The Argentinian economy has collapsed the most since the last recession. German 10-year yields are back at zero. Japan March factor output is falling at the fastest pace in three years.

U.S. equities started the day modestly lower as Treasury yields fell strongly in overnight trading. The three-month, ten-year Treasury yield curve inverted today, which Larry Kudlow said last summer is the best predictor of a recession, as an inverted 3m10Y Spread has accurately predicted every recession in the past 50 years with only minor exceptions.

Existing Home Sales jumped in February by +11.8% MoM as buyers took advantage of lower prices and lower interest rates. While the monthly jump is impressive, on an annualized basis, existing home sales have fallen twelve months in a row and are contracting at a -1.8% YoY rate.

U.S. Manufacturing and Services flash PMIs both fell in March but remain in expansionary territory, but not by much. The current PMIs are suggestive of a 2% economic growth rate in the first quarter, even though government projections for the first quarter are about 0.5%.

The broad equity market gave up its gains from this week with trading volumes only slightly higher than average. The High-Frequency Trading program that helps boost stock prices by getting investors to pay more, also help investors lose on the way down. Look for more pain next week as corporate share buyback blackouts hit their peak.

The big story of the day is in U.S. Treasury bonds, as 10-year Treasuries closed at 2.436%. Treasury yields were lower across the board and inversions are starting to occur, which generally signal an impending recession.

Oil and gas producer stocks tanked, just as investors were thinking this sector was about to shoot higher. This sector closed back below its 50-day moving average and just above a support zone. Failure to hold support will trigger a retest of its December lows.

Physical gold was up slightly, along with the mining stocks, but isn’t gaining much traction. In the short term, lower gold prices are more likely, but in the long term, there is a compelling case for gold.

Agricultural commodities were in a fight between buyers and sellers around its 50-day moving average, but the sellers won out for the day. With reports coming in that states like Nebraska have experienced record flooding, farmers are literally underwater. Early reports state that as much as one-third of stored corn and other commodities are also underwater.

The worse has yet to come, as eventually receding floodwaters will pull valuable topsoil along with smaller livestock away with it. Solar minimums lead to higher agricultural commodity prices due to the damage caused by shifting weather patterns.