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OnTheRadar: Geopolitical Jitters Prompt Safe-haven Demand

--US 10-Year Ylds Closing At Lowest Lvls Since Last November
--Gold Prices At Highs Seen Before US Election
By Vicki Schmelzer
     NEW YORK (MNI)   - Geopolitical jitters prompted demand for safe-havens
Tuesday, with gold posting highs last seen before the U.S. election in November
and ten-year U.S. Treasury yields testing low levels seen just after the
     U.S. stocks suffered also, but managed to recover from the worst levels of
the day.  
     U.S. players, trying to find their sea-legs after the long Labor Day
holiday weekend, were digesting the prospects of North Korea launching another
intercontinental ballistic missile (ICBM) at the weekend, likely Sept. 9 - the
anniversary of the country's founding.
     Reports that Hurricane Irma, heading towards Florida and Puerto Rico, has
turned into a Category 5 storm, added to ongoing concern about the U.S. debt
ceiling and actions in Congress. 
     On the fixed income front, 10-year U.S. Treasury yields were last near
2.070%, after trading in a 2.063% to 2.148% range (Bloomberg levels). Last
week's high yield was around 2.18%, seen August 28, will act as resistance.
     Earlier, 10-year U.S. yields took out the 2017 low near 2.088%, posted
August 29, to test low levels last seen Nov. 10, when 10-year yields saw a wide
range of 1.991% to 2.145% two-days after the U.S. election. Nov. 10 was the last
time 10-year yields traded below 2.0%. 
     Tuesday's clear-cut close below 2.10% had market players worried about a
sub-2.0% move. 
     After a larger yield sell-off in June, U.S. yields subsequently recovered,
and 10-year yields rose to 2.396% July 7, the highest since mid-May. U.S. yields
topped out at 2.357% July 14 and more recently, yields peaked near 2.289% on
August 8 and August 4 before retreating subsequently.
     As background, U.S. Treasury yields posted highs near 2.421% on May 11,
which was the highest yield since March 31, when the 10-year yield peaked at
2.431%. These levels will be the next larger topside hurdles.
     On March 14, ahead of the Fed decision, 10-year U.S. yields topped out at
     As a reminder, 10-year U.S. yields rallied from lows near 1.720% Nov. 9,
the day after the U.S. election, to highs near 2.639% on Dec. 15, 2016, which
was the highest since the Sept. 19, 2014, peak near 2.655%.
     Ten-year German Bund yields closed near 0.338% Tuesday, after trading in a
0.333% to 0.382% range. 
     The August 29 yield low of 0.320% was the lowest Bund yield since June 27,
when yields troughed at 0.238%. 
     The July 12 yield high of 0.619% was the highest since Jan. 4, 2016, when
Bund yields peaked at 0.627%, the 2016 high. The next level of resistance will
be 0.651%, the Dec. 30, 2015 high. The June 14 low of 0.225% was the lowest
since April 20, when yields bottomed at 0.192%.
     As background, Bund yields fell to a low near -0.161% Sept. 27, 2016,
versus the life-time low around -0.2059% seen July 6, 2016.
     The European Central Bank meets Sept. 7, with market players looking for
any mention of the FX effects of the euro as well as insight into what will
happen to the current bond buying program when it expires in December. Most
analysts expected ECB guidance in October instead of this month. See Jack
Duffy's ECB Preview on MNI Main Wire at 6:55 a.m. ET for details. 
     Currently, the ECB is buying E60 billion per month. Analysts have varied
views about what the central bank will do in terms of extending the bond buying
program and or reducing the amount of bonds purchased. 
     Ten-year UK Gilt yields closed around 1.026%, after trading in a 1.013% to
1.076% range. Gilt yields bottomed at 0.987% August 29, the lowest levels since
late June.  
     The July 7 high Gilt yield of 1.338% was the highest since Feb. 6, when
yields peaked at 1.370%. The June 14 low of 0.923% was the lowest since Oct. 7,
when Gilt yields bottomed near 0.905%.
     On Jan. 26, 2017, 10-year UK yields saw highs near 1.530%, which was the
highest yield since Dec. 15, when yields hit 1.536%, the highest since May 5,
2016, when Gilt yields saw a high near 1.538%.
     Ten-year Japanese government bond yields closed around -0.002%. JGB yields
have flirted with negative territory since last Friday, and current yields are
the lowest yields since mid November.
     JGB yields hit highs near 0.108% July 7, which prompted the Bank of Japan
to step in buying bonds, offering to buy 10-year JGBs in unlimited amounts at
     Current low JGB yields compared to the Feb. 3 highs near 0.150%, which were
the highest since the BOJ introduced negative interest rate policy back on Jan.
29, 2016. see also MNI BOJ INSIGHT on the Main Wire at 7:16 a.m. ET.
     In currencies, the euro held near $1.1913 heading into the close, on the
high side of a $1.1868 to $1.1941 range. On Friday, the euro topped out at
     The August 29 high of $1.2070 was the highest euro level since Jan. 2,
2015, when the pair topped out at $1.2108. A few weeks earlier, the euro posted
a high near $1.2570 on Dec. 16, 2014. 
     Last month, on August 17, the euro posted a low of $1.1662, which was the
lowest level since July 27, when the pair bottomed near $1.1650. 
     In other pairs, dollar-yen was trading near Y108.83, on the low side of a
Y108.63 to Y109.83 range. 
     Last week, the pair topped out Thursday at Y110.67 and at last week's U.S.
yield lows on August 29, troughed near Y108.27, the lowest level since April 17,
when dollar-yen bottomed at Y108.13. 
     In commodities, spot gold was closing near $1,338.60 per ounce, after
trading in a $1,326.27 to $1,344.44 range.
     Gold earlier took out $1,337.38, the high seen Nov. 9, in the wake of the
U.S. election, with all eyes now on a move towards the 2016 high of $1,375.34,
seen July 11. 
     Tuesday's gold high was the highest since Sept. 8, 2016 when the precious
metal peaked at $1,349.51. 
     The August 15-16 lows near $1,267-$1,268 will continue to act as larger
     Crude oil prices benefited from a weaker dollar and expectations of reduced
     NYMEX October light sweet crude oil futures settled up $1.37 at $48.66 per
barrel, after trading in a $47.15 to $48.98 range. Last Thursday's low of $45.58
was the lowest since July 24, when the front contract posted a low of $45.40.
     Crude closed above its 55-day moving average of $46.80, but remained below
its 200-day moving average, currently at $49.48.  
     The front contract peaked August 10 at $50.22. This came after topping out
at $50.43 August 1 and $50.41 July 31, which was also the last time West Texas
Intermediate closed above the $50 mark. 
     Most recently, WTI topped out at $52.00 May 25, before the announcement of
a nine-month extension of OPEC/non-OPEC production cuts. The extension was
largely priced in and oil fell to $42.05 on June 21. 
     Baker Hughes rig count data, released last Friday, showed no change in U.S.
"oil-only" rigs, which remained at 759 rigs in the week ending Sept. 1. This is
less than double the 407 rigs seen a year ago. Rigs are still down 52.8% from
the peak rig count of 1,609 rigs seen Oct. 10, 2014.
     Gasoline prices continued to creep higher. 
     The AAA National Fuel Gauge put the average cost of regular unleaded
gasoline at $2.648% per gallon Tuesday, the highest national gas price average
of the year. 
     This compared to $2.638 Monday, $2.378 a week ago, $2.346 a month ago and
$2.204 a year ago. Average gas prices are up 11.4% on the week. 
     In U.S. stocks, the S&P 500 closed down 0.76% at 2,457.85, after trading in
a 2,446.55 to 2,471.97 range. The S&P 500 posted a high of 2,480.38 Friday ahead
of the Labor Day weekend. 
     The August 21 low of 2,417.35 was the lowest since July 11, when the index
bottomed at 2,412.79. 
     At Tuesday's close, the S&P 500 was up 9.8% year-to date and down 1.3% from
the life-time intraday high of 2,490.87, seen August 8. 
     Market players were also monitoring the Russell 2000 index, which often
leads larger stock swings.
     The Russell 2000 closed near 1,400, down from an earlier high of 1,414.546.
The index posted a low of 1,349.35 August 18, which was the lowest level since
April 17, when the Russell 2000 bottomed at 1,345.363.
     On risk appetite, the CBOE's volatility index or VIX was last at 12.42, in
the middle of a 11.41 to 14.06 range. 
     The VIX high of 17.28, seen August 11 at the peak of U.S.-North Korea
tensions, was the highest since Nov. 9, the day after the U.S. election, when
the VIX peaked at 21.48. The 2017 high was 23.01, seen Nov. 4 ahead of the
     In August, the VIX traded both sides of its 200-day moving average,
currently at 11.63. The index will need to close below that mark on a sustained
basis to suggest that risk sentiment was improving. 
     The July 26 low of 8.84 was a new life-time intraday VIX low (prior
life-time intraday low was 8.89, seen Dec. 27, 1993). 
     Looking ahead, global data and central bank decisions will take a backseat
to North Korea and other uncertainties. 
     --follow MNIEyeonFX on --
--MNI New York Bureau; tel: +1 212-669-6438; email:

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