Market Brief – Thursday 5/23/19

U.S. equities are finally starting to realize that the economic data is not improving. Both stocks and Treasury yields were down in early trading, with nearly the entire Treasury yield curve inverted against the Federal Funds rate.

Following another dismal report out of Germany’s manufacturing sector last night, The U.S. Flash Manufacturing PMI survey came in at 50.6, well below April’s print of 52.6. Any reading under 50 denotes a contraction in the sector, so a low 50 number indicates the factory sector is barely growing. A weak factory sector also means second-quarter GDP growth should be weak.

New Home Sales plunged -6.9% MoM and the rising annualized trend in new homes sales is starting to roll over. Sales slowed as median home prices rose +11.9% as supply rose to 5.9 months from April’s 5.6 month supply.

Crude oil got whacked in early trading as investors are starting to accept that higher crude oil inventory builds are coming with a weakening global economy. Crude oil fell -$4 per barrel in early trading and oil and gas producing stocks were down more than -5% at one point.

The broad equity market closed lower, but buyers stepped in during late trading to push stock prices back over key technical levels. Traders are very leveraged in their positions to the point they must keep the stock market up for face a very nasty unwind.

Treasury yields headed lower as 10-year Treasuries briefly dipped below 2.3% only to close at 2.316%. Treasuries have broken technical resistance, so look for yields to head lower in the weeks to come. The three-month, 10-year Treasury yield curve is inverted again, as long-term yields fall below short-term yields, which is a sign of financial stress.

Physical gold rallied a bit but the mining stocks didn’t share in the enthusiasm. After rising in early trading, sellers came into push both gold and silver mining stocks back down, even as both closed higher on the day.

The broad M2 Money Supply fell to 3.88% on an annualized basis. The 6- and 3-month rate of changes are 2.07% and 0.89%, both of which are in harmony with the year-over-year rate of change. Overall the growth rate of the money supply is very weak and more in line with recessions than expansions.