OnTheRadar: NFPs Disappoint, ISM Firm; Mkt On Hold For Now

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By Vicki Schmelzer

     NEW YORK (MNI)   - U.S. non-farm payroll data disappointed Friday, but

negative sentiment soon faded as ISM data came in better than expected. 

     Nevertheless, market players were eager to leave for the long Labor Day

holiday weekend and content to wait until next week before entering into new

positions. 

     August non-farm payrolls were reported at 156,600 versus MNI's median

estimate of 180,000. There were -41,000 in backward revisions to June and July. 

     The unemployment rate rose to 4.4% from 4.3%, with the participation rate

at 62.9, unchanged from July. Average hourly earnings were tepid at 0.1% versus

0.2% expected

     The MNI Data Watch and an MNI employment preview both noted the tendency of

analysts to overestimate August payrolls, as has occurred in the previous six

years. See MNI Main Wire story at 8:52 a.m. ET for details. 

     U.S. Treasury yields and the dollar dipped on the jobs data, only to

reverse course when the market decided the numbers were not as bad as initially

thought.

     Later, upbeat August ISM data, with the headline rising to 58.8 from 56.3

in July and compared to MNI's median of 56.6, soon propelled U.S. Treasury

yields and the dollar even higher. 

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

2.153%, after trading in a 2.099% to 2.166% range. Monday's yield high was

around 2.18% and is the next topside hurdle.

     On August 29, 10-year yields took out the 2017 low near 2.103%, seen June

14, to test 2.088%, lows 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%. 

     While 10-year U.S. yields have stabilized above the June low subsequently,

the lack of more marked recovery kept market players worried about a sub-2.0%

move. 

     After the yield sell-off back 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

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 0.379% Friday, after trading in a

0.356% to 0.402% 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.

     Bund yields were weighed earlier by talk that the European Central Bank,

which meets Sept. 7, may not offer any insight into what will happen to the

current bond buying program when it expires in December. Analysts had expected

guidance either this month or in October. 

     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 1.057%, after trading in a 1.022% 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 0.00%, after dipping

into negative territory (-0.005% low) earlier for the first time since last Nov.

16. See MNI Main Wire story at 7:16 a.m. ET for details. 

     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.

     In currencies, the euro held near $1.1867 at midday Friday, on the low side

of a $1.1850 to $1.1980 range. 

     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. 

     This 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 Y110.25, in the middle of a

Y109.56 to Y110.47 range. 

     This week, the pair topped out Thursday at Y110.67 and at this 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. 

     Earlier in the month, dollar-yen peaked at Y110.95 and Y111.05 on August 16

and August 4, and those old highs will now act as initial resistance. 

     In commodities, spot gold was closing near $1,323.15 per ounce, after

trading in a $1,316.82 to $1,328.91 range. Gold earlier vaulted Tuesday's high

of $1,326.89 which was the highest level since November. 

     This week's decisive closes above $1,300 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.

     Crude prices remained rangy as market players assessed 

     NYMEX October light sweet crude oil futures is trading down $0.27 at $46.96

per barrel, after trading in a $46.56 to $47.28 range. Thursday's low of $45.58

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

     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 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 $2.519% per gallon Friday, the highest national gas price average of

the year.. 

     This compared to $2.449 Thursday, $2.352 a week ago, $2.320 a month ago and

$2.223 a year ago. Average gas prices are up 7.1% on the week. 

     In U.S. stocks, the S&P 500 were last up 0.34% at 2,480, after trading in a

2,462.65 to 2,480.38 range. 

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

bottomed at 2,412.79. 

     At Thursday's close, the S&P 500 was up 10.4% year-to date and down 0.8%

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 index, last around 1,410.85 and at the day's highs, 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.

     Thursday's close above an old pivot zone of old lows/highs in the

1,390-1,400 was deemed promising, but budding bulls will take more comfort from

a close above the 55-day moving average, currently a bit above 1,407. 

     On risk appetite, the CBOE's volatility index or VIX was last at 10.03, on

the low side of a 10.02 to 11.22 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 11.63. 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 to next week, all eyes will be on Thursday's European Central

Bank decision and whether the central bank announces any information about its

bond buying program. The Reserve Bank of Australia and Bank of Canada have

monetary policy decisions and there is a host of Fed speakers.  

     --follow MNIEyeonFX on twitter.com --

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

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