OnTheRadar: Hurricane Harvey Adds To Mkt Woes

--US Tsy Yields, USD On Defensive; Euro Nears $1.2000, Gold over $1,300

By Vicki Schmelzer

     NEW YORK (MNI)   - Hurricane Harvey devastation added to market worries

Monday, with risk jitters keeping U.S. Treasury yields and the dollar on the

defensive. 

     The hurricane rolled into Texas as a category 4 storm over the weekend and

while it later was downgraded to a category 3 storm, widespread destruction was

still ongoing. 

     The U.S. Department of Energy noted that "Harvey was the strongest

hurricane to impact Texas since 1961 and the first category 4 storm to make

landfall in the United States since Hurricane Charley impacted Florida in 2004."

     As a result of the carnage, as per 7:30 a.m. ET Monday, 291,181 customers

were without power across Texas and 1,415 in Louisiana, the DOE statement said. 

     "Impacted utilities have issued statements that they are expecting power

outages to last several days," the DOE said.

     In terms of petroleum refineries, as per 8:00 am ET Monday, all six

refineries around Corpus Christi were shut down, "although one refinery had

begun startup operations, and four refineries in the Houston/Galveston area have

begun the process of shutting down, according to public reports," the report

said.

     "These refineries have a combined refining capacity of 2,170,149 b/d, equal

to 43.2% of total Texas Gulf Coast refining capacity and 11.8% of total U.S.

refining capacity," the DOE said. 

     Also, "two refineries in the Houston/Galveston region area and one refinery

in the Beaumont/Port Arthur area were operating at reduced rates," the report

said.

     The Port of Houston was closed Monday and announced that all port

facilities will also be closed Tuesday, "due to the continued threat of

inclement weather." 

     "We will be continuing to monitor the developing weather conditions to

determine whether operations can safely resume on Wednesday," the Port of

Houston said. 

     The U.S. Coast Guard designated "Port Condition Zulu," meaning closed until

further notice, at the Port of Corpus Christi. 

     It was too early to gauge the extent of the economic damage from Hurricane

Harvey, analysts said. 

     Harvey's wrath took attention away from last week's concern about Congress,

the debt ceiling, NAFTA and other geopolitical concerns, which have weighed on

risk sentiment in recent sessions. 

     On the fixed income front, 10-year U.S. Treasury yields were last near

2.159%, on the low side of a 2.155% to 2.180% range. The earlier yield low was

the lowest since June 27, when 10-year U.S. yields bottomed near 2.126%. 

     Most recently, U.S. Treasury yields peaked near 2.289% on August 8 and

August 4 and have retreated subsequently. 

     As background, U.S. Treasury yields bottomed June 14 near 2.103%, which was

the lowest since 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%.

     U.S. yields subsequently recovered, with the June lows deemed overdone,

with 10-year yields rising to 2.396% July 7, the highest since mid-May. More

recently, U.S. yields topped out at 2.357% July 14 and have been on the

defensive since. 

     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

2.628%.

     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 0.376 Monday, after trading in a

0.365% to 0.398% range. 

     The earlier low was the lowest Bund yield since June 28, when yields

troughed at 0.332%.  

     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.

     Ten-year UK Gilt yields closed around 1.053%, after trading in a 1.049% to

1.075% range. 

     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 0.018% and earlier

hit low levels last seen in mid April. 

     Yields hit highs near 0.108% on 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 high yields compare to April 20, when JGB yields flirted with

negative territory for the first time since last November and the Feb. 3 highs

near 0.150%, which were the highest since the BOJ introduced negative interest

rate policy back on Jan. 29, 2016.

     In currencies, the euro held near $1.1976 late Monday, on the high side of

a $1.1917 to $1.1984 range. 

     The euro last traded above the psychological $1.2000 mark Jan. 5, 2015 when

the pair topped out at $1.2007

     This month, the August 17 euro low of $1.1662 was the lowest level since

July 27, when the pair bottomed near $1.1650. 

     In other pairs, dollar-yen held near Y109.31 in late afternoon action,

after trading in a Y109.03 to Y109.41 range. 

     This month, dollar-yen peaked at Y110.95/Y111.05 August 16/August 4 and

troughed at Y108.60 August 18, which was the lowest since April 19, when the

pair bottomed near Y108.38.

     As background, dollar-yen bottomed at Y108.83 June 14, the day U.S. 10-year

yields posted their most recent low of 2.103%, and then tracked U.S yields

higher, topping out near Y114.49 July 11, the highest level since mid March,

around the same time 10-year yields hit 2.396%. 

     In commodities, spot gold was closing near $1,310.75 per ounce, after

trading in a $1,291.92 to to $1,312.08 range. 

     A decisive close above $1,300 will target  $1,337.38, the high seen Nov. 9,

in the wake of the U.S. election. The 2016 high was $1,375.34, seen July 11. 

     The August 15-16 lows near $1,267-$1,268 will continue to act as initial

support.

     NYMEX October light sweet crude oil futures settled down $1.30 at $46.57

per barrel, after trading in a $46.15 to $48.20 range. The earlier low was the

lowest since July 24, when the front contract posted a low of $45.40. 

     West Texas Intermediate closed below its 55-day moving average, currently

at $46.62, unable to take comfort from a falling dollar.

     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 Friday, showed a four rig decrease to

759 rigs for U.S. "oil-only" rigs in the week ending August 25. This is less

than double the 406 rigs seen a year ago. However, rigs were still down 52.8%

from the peak rig count of 1,609 rigs seen Oct. 10, 2014.

     In an exclusive interview Monday, MNI's Jean Yung spoke with a Houston

economist, who said Hurricane Harvey could give the region an opportunity to

draw down excess inventories and help support crude prices long term. See MNI

Main Wire at 2:08 p.m. ET for details. 

     RBOB Gasoline futures settled up $0.0457 at $1.7123 per gallon, after

trading in a $1.7036 to $1.7799 range. The earlier high was the highest level

since January. 

     In U.S. stocks, the S&P 500 closed up 0.05% at 2,444.24, after trading in a

2,439.86 to 2,449.12 range. The S&P 500 has struggled recently to decisively

vault its 55-day moving average, around 2,449. 

     The August 21 low of 2,417.35 was the lowest since July 11, when the index

bottomed at 2,412.79. 

     At Monday's close, the S&P 500 was up 9.2% year-to date and down 1.9% from

the life-time intraday high of 2,490.87, seen August 8. 

     On risk appetite, the CBOE's volatility index or VIX was last at 11.39, in

the middle of a 11.23 to 12.11 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

election. 

     In August, the VIX has traded both sides of its 200-day moving average,

currently at 11.70. 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). 

     This week, U.S. employment data, due out Friday, and flash eurozone

inflation data, set for release Thursday, will be key drivers ahead of the long

Labor Day holiday weekend in the U.S. 

     --follow MNIEyeonFX on twitter.com --

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

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