OnTheRadar: Mkt Worries In Rear View; S&P 500 Vaults 2,500

--US Stock Indices At Record Intraday Highs/High Closes

By Vicki Schmelzer

     NEW YORK (MNI) - The laundry list of worries prominent on the market's

radar screen seven days ago were in the rear-view mirror Friday. 

     How long the relative euphoria lasts will hinge on upcoming U.S. and global

data sets and how U.S. geopolitical events unfold in coming weeks.  

     This week, as risk jitters dissipated, safe-haven positions were unwound,

sending U.S. stocks to record highs and U.S. Treasury yields flying higher. 

     Ten-year U.S. Treasury yields were last near 2.202%, after trading in a

2.176% to 2.213% range. Thursday's U.S. yield high of 2.216% was the highest

since mid August. 

     Ten-year U.S. yields were nearing their first topside hurdle in the form of

the 55-day moving average, at 2.233%. Yields have been below their 55-day moving

average since mid-August. 

     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. Nov. 10

was the last time 10-year yields traded below 2.0%. 

     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.

     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

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 0.433% Friday, after trading in a

0.400% to 0.449% range. The earlier high was the highest since August 16, when

Bund yields peaked near 0.468%. 

     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 0.025%. Last week,

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 1.309%, on the high side of a 1.229%

to 1.341% range. 

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

lows near 0.938% and Friday's high the highest since Feb. 6, when UK yields hit

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%.

     UK yields and cable rose sharply this week in response to the Bank of

England monetary policy statement and hawkish BOE rhetoric.  See MNI Main Wire

story at 6:09 a.m. ET for details.  

     The BOE next meets November 2, with market players pricing in increased

odds of a 25 basis point hike. 

     On the FX front, rising U.S. yields served to underpin the dollar, but

selectively, because interest rate differentials were often times still less in

the greenback's favor than before.  

     And U.S. Treasury yields, while back at high levels seen about a month ago,

are still on the low side of the 2.016% to 2.625% range seen in 2016 so far,

which prevented FX players from becoming more bullish towards the dollar. 

     The euro held near $1.1947 late Friday, in the middle of a $1.1901 to

$1.1987 range. 

     The pair bottomed Thursday near $1.1838, and stalled ahead of the August 31

lows near $1.1823, seen as initial support. 

     Only last month, on August 17, the euro bottomed near $1.1662, the lowest

level since July 27, when the pair bottomed near $1.1650. As the dollar slipped

overall, the euro recovered. 

     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. A few weeks earlier, the euro posted a high

near $1.2570 on Dec. 16, 2014. 

     In other pairs, dollar-yen held near Y110.87, in the middle of a Y109.56 to

Y111.33 range. The earlier high was the highest since July 28, when the pair

peaked also at Y111.33. The July 27 high near Y111.71 will be the next topside

hurdle.

     On Sept. 8, as U.S. Treasury yields were testing their lows and risk

aversion was high, dollar-yen bottomed at Y107.32, the lowest level since Nov.

14 2016, when the pair bottomed at Y106.51. 

     Cable was closing around $1.3590, on the high side of a $1.3382 to $1.3616

range. 

     The earlier high was the highest since early June 24, the day after Brexit,

when the pair traded in a wide $1.3229 to $1.5018 range. Sterling last closed

above $1.3500 on June 24. 

     In commodities, spot gold held near $1,321.35 per ounce, after trading in a

$1,319.88 to $1,334.42 range. 

     Gold bottomed at $1,315.80 Thursday. Support is seen at the psychological

$1,300 mark and the August 31 low is $1,298.46. 

     The $1,357.61 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. 

     Barring a larger gold pullback, the market still saw scope for gains toward

the 2016 twin-peak highs of $1,375.28 and $1,375.34, seen July 6 and July 11

respectively. 

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

support.

     NYMEX October light sweet crude oil futures settled unchanged at $49.89 per

barrel, after trading in a $49.41 to $50.13 range. 

     On Thursday, the pair vaulted its 200-day moving average, currently at

$49.57 and took out late July/early August peaks in the $50.22 to $50.43 to post

nearly a four-month high of $50.50 before backing off. West Texas Intermediate

last closed above the psychological $50 mark July 31 

     Only August 31, WTI posted a low of $45.58, the lowest since July 24, when

the front contract posted a low of $45.40.

     As background, 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 seven rig decline

to 749 rigs in U.S. "oil-only" rigs for the week ending Sept. 15. This is less

than double the 416 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 0.18% at 2,500.23, after trading in a

2,493.16 to 2,500.23 range. The earlier high was a life-time intraday high and

this is a life-time high close.

     At Friday's close, the S&P 500 was up 11.7% year-to-date. 

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

leads larger stock swings.

     The Russell 2000 closed at 1,431.71, down from an earlier high of 1,431.99,

which is still below the 1,452.091 life-time high seen July 25. 

     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.

     On Friday, the Dow Jones Industrial Average posted a new intraday high of

22,275.02 and had a new life-time high close of 22,268.34. 

     The Nasdaq Composite closed at 6,448.47. The index peaked at a new

life-time intraday high of 6,464.27 earlier and this was a new life-time closing

higher. 

     On risk appetite, the CBOE's volatility index or VIX was last at 10.17, in

the middle of a 10.00 to 10.74 range. The index is below its 200-day moving

average, at 11.55. 

     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 2017 high was

23.01, seen Nov. 4 ahead of the election. 

     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, all eyes next week will be on the Federal Reserve and the

monetary policy decision Wednesday. No change in policy is expected, but the

market awaits guidance on balance sheet normalization. 

     Soundbites about U.S. tax reform will also be of interest. 

     --follow MNIEyeonFX on twitter.com --

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

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