Market Brief – Tuesday 7/23/19

Stocks and Treasury yields started the day higher on reports that the debt ceiling will be suspended for the next two years, and that Congress will pass a budget before their summer recess. Those that understand how increasing deficits impact the financial markets already know that more debt and deficits are bearish for stocks and Treasury yields.

In overnight trading, Japan Machine Tool Orders to China collapsed by -59.7% in June and total Machine Tool Orders fell by -37.9% on an annualized basis.

Existing Home Sales fell -1.7% in June against expectations of a +0.4% increase. On an annualized basis, existing home sales fell -2.2%, making this the sixteenth straight month of declines in existing home sales.

The Richmond Fed Manufacturing survey crumbled by dropping fourteen points to -12 for the month of June. Shipments, new orders, and employment all fell. Capacity utilization fell to its lowest level since the Great Financial Crisis.

Agricultural commodities started the day lower after the USDA posted its weekly crop progress report after markets closed. The USDA’s crop progress model is being put into question by experts in the Midwest, as many crop progress reports utilize satellite and weather reports to make their determinations. None of the current models take into account the delayed plantings and likely lower yields from delayed planting. Agricultural commodities rallied back over their 100-day moving average in early trading.

Today’s $40 billion 2-year Treasury auction saw foreign bidders take a mere 43.5% of the auction, domestic bidders take 24.9% of the auction, which left securities dealers with 31.6% of the auction. Weak demand for this auction is surprising given the slowing global economy and expectations for the Fed to cut rates at the end of the month. Yields fell slightly following the auction.

Stocks jumped in midday trading on reports that U.S. Trade Representative Lighthizer and two senior officials are headed to China for the first meeting since talks broke down in June. While nothing is expected to come out of the meeting, as the meeting is to discuss a broad range of issues, computer algorithms bid stock prices higher on heavy volume within seconds of the report hitting the wires.

Treasury yields followed stocks higher on the same news as 10-year Treasury yields are back at an interim resistance level. Treasury sellers will be looking to drive yields higher, but they face stiff resistance as yields have traded sideways for nearly two months straight. Thirty-year Treasury yields are looking to reconfirm the bottom end of their 50-day moving average, which if held, is a bearish signal for yields.

Physical gold, which has been rallying on hopes for a large Fed rate cut, fell back below a strong support level where prices have been trading for the past couple weeks. Failure to hold the current price range should send speculators and traders running to the exit. Agricultural commodities shook off their initial drop and closed over their 50- and 100-day moving averages, which remains a bullish signal.

The American Petroleum Institute reported crude oil inventories as Crude: -10.961mm, Cushing: -448k, Gasoline: +4.436mm (largest since January), and Distillates +1.420mm. Large crude draws are being offset by gas and distillates builds. Keep in mind the API report is voluntary and the official government report will be out tomorrow morning. Crude oil prices jumped following the report and then quickly fell back to today’s closing price.