Market Brief – Friday 9/27/19

In overnight trading, China Industrial Profit fell by -2.0% on a year-over-year basis for the month of August which sent Asian equities lower. China’s stock market will close next Tuesday through the following Monday for Chinese National Day, and Hong Kong’s markets will be closed Tuesday for holiday.

Personal Incomes rose in August by +0.4% but Personal Consumption Expenditures, or personal spending, only increased by +0.1% in August. On a year-over-year basis, personal incomes fell to +3.7% and spending was flat at +4.6%. The Personal Savings Rate increased from +7.8% to +8.1% which means consumers are choosing to save their raises rather than spend them. Higher employee costs and lower spending is not a good recipe for corporate earnings and profits growth. Core Personal Consumption Expenditures remain below the Fed’s 2% target as it came in at +1.77% increase over August last year.

Stocks started the day lower but quickly rebounded near where they opened yesterday with Treasury yields slightly lower. Stocks and yields quickly fell after a report from the White House that President Trump is considering delisting Chinese companies from the U.S. stock exchanges and limiting investment flows to Chinese companies.

Shortly after stock prices fell, investors eagerly bought the dip which sent stock prices back near their opening price and Treasury yields higher. Gold and crude oil fell in early trading as tensions with Saudi Arabia are falling due to a partial cease-fire with Yemen.

Liquidity constraints fell this morning as the New York Fed’s 14-day repo operation only attracted $49 billion against an offer of $60 billion. The overnight repo operation of $100 billion only saw bids of $22.7 billion. Next week liquidity concerns should rise again as settlements for this week’s Treasury auctions start Monday.

On a day without any liquidity constraints, liquidity disappeared from the markets as nearly every sector closed in the red. Today’s fall in stock prices was not a risk-off move since Treasury yields were only down slightly on the day. Gold fell and crude oil also fell after reports that Saudi Aramco was back near full production. The dollar held on to most of its gains for the week and it will continue to pose a problem for the markets, as a strong dollar is a drain on liquidity.