OnTheRadar: Good Night, and Good (Financial) Luck

By Vicki Schmelzer

     NEW YORK (MNI) - At Friday's close, U.S. Treasury yields and the dollar

were off the week's highs but underpinned nevertheless by perceived increased

odds of a December Fed rate hike and prospects of U.S. tax reform.

     U.S. stocks were buoyant at month-end and quarter-end, posting new

life-time highs. 

     Ten-year U.S. Treasury yields were last near 2.335%, on the high side of a

2.296% to 2.337% range. Thursday's yield high near 2.359% was the highest level

since July 13, when yields peaked at 2.366%. 

     On Thursday, ten-year U.S. yields vaulted the 200-day moving average,

currently near 2.325% and flirted with that mark again Friday. Yields have

closed below the 200-day moving average since late July. 

     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. If the

200-day moving average decisively gives way, this will be the next topside

target. 

     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%. 

     On March 14, ahead of the Fed decision, 10-year U.S. yields topped out at

2.628%.

     The Sept. 8 yield low near 2.016% was the lowest since Nov. 10, when yields

saw a wide range of 1.991% to 2.145% - two-days after the U.S. election. 

     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 0.464% Friday, after trading in a

0.447% to 0.484% range. Thursday's high of 0.518% was the highest since August

1, when Bund yields peaked near 0.556%. 

     The low of 0.292%, seen Sept. 8, was the lowest Bund yield since June 27,

when yields troughed at 0.238%. The June 14 low of 0.225% was the lowest since

April 20, when yields bottomed at 0.192%.

     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 would

be 0.651%, the Dec. 30, 2015 high. 

     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.

     Ten-year Japanese government bond yields closed around 0.068%. When U.S.

and other global yields were at recent lows earlier in September, JGB yields

flirted with negative territory and tested 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

0.11%. 

     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. 

     Ten-year UK Gilt yields closed around 1.365%, after trading in a 1.342% to

1.384% range.  

     The Sept. 8 low of 0.951% was the lowest since June 15, when yields tested

lows near 0.938% and Thursday's high near 1.428% was the highest since Feb. 2,

when UK yields hit 1.465%.

     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%.

     In currencies, the euro held near $1.1816 late Friday, in the middle of a

$1.1773 to $1.1833 range. On the day, pair traded both sides of the 55-day

moving average, at $1.1818, making it hard to discern near-term direction. 

     The Sept. 27 low of $1.1717 was the lowest since August 18, when the euro

bottomed at $1.1709. A break of $1.1700 will target the August 17 lows near

$1.1662.

     The Sept. 8 high of $1.2092, seen at the peak of dollar selling, was the

highest euro level since Jan. 2, 2015, when the pair topped out at $1.2108. The

2015 high was $1.2109, seen Jan. 1. 

     In other pairs, dollar-yen held near Y112.59, in the middle of a tight

Y112.22 to Y112.74 range. 

     The Sept. 27 high of Y113.26 was the highest level since July 14, when

dollar-yen peaked at Y113.58. The July high was Y114.49, seen July 11. 

     The 200-day moving average, currently at Y112.04, will act as initial

support.  

     Those trying to gauge overall U.S. dollar direction, were keeping an eye on

the Mexican peso, often used as a proxy for emerging market risk. 

     As larger push higher in USDMXN would suggest that global investors foresee

higher U.S. Treasury yields which would hurt EM economies. 

     Earlier this week, dollar-peso vaulted the psychological Mxn18.0000 mark,

with follow trough to Mxn18.2994 Thursday, the highest level since July 7, when

the pair posted a high near Mxn18.3134. 

     Dollar-peso was closing near Mxn18.2120, on the high side of a Mxn18.0884

to Mxn18.2374 range. A break above the July 5 high near Mxn18.4056 would target

the June 5 highs near Mxn18.8230. 

     In commodities, spot gold held near $1,280.30 per ounce, after trading in a

$1,279.79 to $1,290.38 range. Gold bottomed at $1,277.83 Thursday. 

     On Sept. 27, gold broke below its 55-day moving average, currently around

$1,290, for the first time since late July, which targets the August 25 lows

near $1,276.36 and mid August lows near $1,267-$1,268 

     The $1,357.61 gold high, seen Sept. 8 at the peak of U.S. dollar sales and

risk aversion, was the highest since August 16, 2016, when the precious metal

peaked at $1,358.21. 

     NYMEX November light sweet crude oil futures settled up $0.11 at $51.67 per

barrel, after trading in a $51.25 to $51.77 range. Thursday's high of $52.86 was

the highest level since April 17, when crude peaked at $53.21. 

     West Texas Intermediate's break, earlier in the week, above the May 25 high

of $52.00, still had some eyeing a move to $53.76, the April 12 high. 

     Crude oil peaked in late May ahead of the announcement of a nine-month

extension of the OPEC/non-OPEC production cuts. 

     This extension was largely priced in and crude prices fell to $42.05 on

June 21 before recovering. There has been talk recently that OPEC may extend the

current agreement, set to expire in March 2018, until the end of next year. 

     Baker Hughes rig count data, released Friday, showed a six rig increase to

750 rigs in U.S. "oil-only" rigs for the week ending Sept. 29. This is less than

double the 425 rigs seen a year ago. Rigs are still down 53.4% from the peak rig

count of 1,609 rigs seen Oct. 10, 2014.

     In U.S. stocks, the S&P 500 closed up 0.37% at 2,519.36, after trading in a

2,507.99 to 2,519.44 range. The earlier high was a new record intraday high and

Friday's close was a new life-time high close.

     At Friday's close, the S&P 500 was up 12.5% year-to-date. 

     Market players were also monitoring the Russell 2000 index, which often

leads larger stock swings. This week, the Russell 2000 has been in hot demand,

with smaller U.S. companies as seen as more likely to benefit from lower

corporate taxes than larger U.S. firms. 

     The Russell 2000 was last near 1,491, down from the new record high of

1,493.555 posted earlier.  

     Last month, the index bottomed at 1,349.354 on August 18, the lowest level

since April 17, when the Russell 2000 bottomed at 1,345.363. From last month's

low to Friday's high, the index was up 10.7%.

     On risk appetite, the CBOE's volatility index or VIX was last at 9.48, on

the low side of a 9.36 to 9.83 range. The index would need to move decisively

back above its 200-day moving average, currently at 11.41, for any suggestion of

waning risk sentiment.

     The VIX high of 17.28, seen August 11, was the highest since Nov. 9, the

day after the U.S. election, when the VIX peaked at 21.48. The high for this

month has been 14.06, seen Sept. 5. 

     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). 

     Editor's Note: This is the final OnTheRadar report. With Vicki Schmelzer

moving on to author MNI's Reality Check series, OnTheRadar will be discontinued

after Sept. 29. If you would like to receive end-of-day FX or fixed income

coverage via email, please contact sales@marketnews.com for possible

alternatives. 

     Author's Note: Heartfelt thanks to the many traders, analysts, economists

and strategists for their help over the years. 

     --follow MNIEyeonUS on twitter.com --

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

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