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Market Brief – Thursday 10/31/19

In overnight trading, China’s Composite Purchasing Manager’s Index (PMI) fell from 53.1 to 52.0 in October, China’s Manufacturing PMI further contracted for the sixth straight month from 49.9 to 49.3 in October, and China’s Non-Manufacturing, or Services, PMI fell to its 8-month low of 52.8. All three PMI’s signal a slowing Chinese economy.

Markets fell in early trading on a Bloomberg report that China doubts there will be a long-term trade deal. President Trump and Larry Kudlow quickly hit the wires by saying a “Phase One” trade deal will be signed once the APEC summit is rescheduled. China has made it clear they will not bend on the larger issues and that they will not negotiate in good faith until all punitive tariffs are removed.

The Fed’s preferred inflation gauge, Personal Consumption Expenditures came in flat at 0.0% for September and fell to +1.3% on a year-over-year basis from 1.4% last month. Excluding food and energy, Core PCE was also flat in September and the year-over-year rate of change fell to +1.7% from +1.8% last month. Personal incomes rose +0.3% in September, but personal spending was lower at +0.2% as consumers are slowing their spending. The personal savings rate ticked up to +8.3% on a year-over-year basis. Treasury bonds rallied in early trading as the PCE, spending, and savings data are bond bullish.

The New York Fed accepted bids of $72.533 billion for overnight repo loans as the dollar liquidity shortage persists despite lowering the Federal Funds Rate yesterday. Treasury yields fell as the Fed began buying Treasury Bills to lower the Federal Funds Rate. Long-term Treasury yields fell accordingly. While most investors believe easy monetary policy is bullish for stocks and bearish for bonds, the last two rate hikes saw stocks sell off and bonds rally in the weeks following the rate cut.

The Chicago Fed Manufacturing PMI crashed from 47.1 in September to 43.2 in October, which the markets are blaming on the General Motors strike. New Orders fell to 37.0, its lowest level since March 2009, signaling a lack of demand, and Order Backlogs, or future demand, fell to 33.1 while employment rose to 49.8. The factory sector in Chicago is headed into a recession.

Stocks closed lower but fought back against their intra-day lows as investors believe rate cuts are bullish for stocks when history suggests otherwise. Treasury yields were the big winners on the day as yields collapsed across the curve as the Fed began buying down the Federal Funds Rate.

Physical gold traded higher but has been stuck around the $1,500 per ounce range for nearly three months. After trading as high as $57 per barrel a few days ago, crude oil closed at its long-standing support level at $54 per barrel. Despite earlier news on the trade war, agricultural commodities rebounded against their early losses to close over its 100-day moving average.