OnTheRadar: Not Enough Enthusiasm To Take US Ylds, USD Higher

--Risk Jitters Remain

By Vicki Schmelzer

     NEW YORK (MNI)   - There was not enough enthusiasm to take U.S. Treasury

yields and the dollar higher Tuesday and lingering risk jitters ended up capping

both instruments. 

     Risk sentiment was being negatively impacted less by international issues

related to North Korea and more by geopolitical concerns in the U.S., where

President Donald Trump has stepped on one media landmine after another. 

     Trump's controversial comments Tuesday about the so-called "alt-left" being

as much to blame as the "alt-right" led several business leaders to step down

from their role as White House advisors. 

     Trump later tweeted that "rather than putting pressure on the

businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am

ending both. Thank you all!"

     Media coverage of the President's comments and reaction served to

overshadow all else, including the release of the FOMC minutes of the July 25-26

meeting. See MNI Main Wire at 2:00 p.m. ET for details. 

     The minutes did little to greatly sway market players' thinking that the

Fed would likely announce balance sheet reduction in September and raise rates

again in December. 

     U.S. Treasury yields and the dollar were firm overnight and then edged

lower in U.S. action, when there was no topside follow-through

     Ten-year U.S. Treasury yields were last near 2.239%, after trading in a

2.222% to 2.285% range, failing again to take out last week's highs.

     On August 8,  U.S. yields peaked near 2.289% which was also the high seen

August 4 seen in the wake of upbeat U.S. non-farm payroll data, edged lower

subsequently as risk appetite declined. 

     Friday's 10-year U.S. yield low of 2.184% was the lowest since June 27,

when ten-year yields bottomed near 2.126%. 

     Ten-year U.S. yields may close back below the 55-day moving average,

currently at 2.244%. The market will be reluctant to become bearish towards U.S.

Treasuries until the 200-day moving average, at 2.327%, is vaulted decisively.  

     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 subsequently. 

     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 0.445% Wednesday, after trading in

a 0.426% to 0.468% range. Yields were weighed at one point by a Reuters report

stating that European President Mario Draghi would not discuss monetary policy

at the Jackson Hole symposium next week, but held well above recent lows. 

     The August 11 low of 0.376% 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.

     Bund yields backed off after the ECB left policy unchanged July 20, but up

until recent risk aversion, maintained a toehold above 0.50% on expectations of

new insight into the central bank's bond buying program, set to expire at the

end of December, either at the Jackson Hole symposium August 24-26 or at the

next monetary policy meeting Sept. 7. 

     Ten-year UK Gilt yields closed around 1.105%, after trading in a 1.078% to

1.126% 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 0.047%. 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 $1.1768 late Wednesday, on the high side

of a $1.1682 to $1.1779 range. 

     The earlier euro low was the lowest level since July 28, when the pair

bottomed near $1.1671. 

     The August 2 euro high near $1.1910 was a 30-month high and the highest

since Jan. 6, 2015, when the pair peaked near $1.1969. The euro last traded

above the psychological $1.2000 mark Jan. 5, 2015.

     The 2015 euro high was $1.2109, seen Jan. 1. And two weeks earlier, on Dec.

16, 2014, the euro peaked at $1.2570. 

     Dollar-yen, tracking U.S. yields closely, was closing near Y110.19, after

trading in a Y110.03 to Y110.95 range. 

     The August 11 low near Y108.74 was the lowest since April 20, when the pair

troughed at Y108.72. 

     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%. 

     The pair stalled earlier very close to the 38.2% Fibonacci retracement of

the move from the July peaks to the August 11 lows, which comes in near Y110.94.

     In commodities, spot gold was closing near $1,282.05 per ounce, after

trading in a $1,267.90 to $1,283.94 range. 

     At the peak of dollar selling and safe-haven demand, the precious metal

topped out near $1,292.10 last Friday, nearly revisiting 2017 highs. 

     On June 6, gold posted a high of $1,296.15, but then stalled, creating a

double-top with the $1,295.56 high seen April 17. Subsequently, gold moved lower

as U.S. Treasury yields and the dollar recovered, bottoming July 10 near

$1,204.90. 

     If the psychological $1,300 mark gives way, the not topside target will be

$1,337.38, the high seen Nov. 9, in the wake of the U.S. election. 

     NYMEX September light sweet crude oil futures settled down $0.77 at $46.78

per barrel, after trading in a $46.67 to $47.99 range. The 55-day and 200-day

moving averages, at $46.56 and $49.33 respectively, will act as initial support

and resistance. 

     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. 

     Risk aversion and a lack of topside follow-through, more so than a larger

change in oil fundamentals, has weighed on prices recently. 

     Even Wednesday's EIA data, showing a crude stock draw of 8.9 million

barrels in the week ending August 11, failed to underpin crude prices.

     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. 

     The S&P 500 was trading at 2,467, in the middle of a 2,463.86 to 2,474.93

range. 

     At current levels, the index was up 10.2% year-to date and down 1.0% from

the life-time intraday high of 2,490.87, seen August 8. The S&P 500 bottomed at

2,437.75 August 10, the lowest level since mid July. 

     The Dow Jones Industrial Average posted a record intraday high of 22,179.11

on August 8 and the the Nasdaq Composite posted a life-time high of 6,460.841

July 27. The indexes held at 22,018 and 6,342 respectively Wednesday afternoon. 

     In terms of risk appetite, the CBOE's volatility index or VIX was last

11.59, in the middle of a 11.25 to 12.54 range. 

     Friday's VIX high of 17.28, at the peak of escalating U.S.-North Korea

tensions, was the highest since Nov. 9, the day after the US election, when the

VIX peaked at 21.48. The 2017 high was 23.01, seen Nov. 4 ahead of the election.

     The VIX has been trading both sides of its 200-day moving average,

currently 11.95. 

     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, Thursday the focus will be on U.S. data as well as the

release of the ECB's July meeting minutes. 

     --follow MNIEyeonFX on twitter.com --

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

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