OnTheRadar: Risk Recovers on US Tax Hopes, Lessening Concerns

--US Stocks See Record Closes

By Vicki Schmelzer

     NEW YORK (MNI) - U.S. tax reform hopes and a lessening of other concerns

helped risk sentiment recover further Wednesday, with U.S. Treasury yields and

the dollar marching higher and U.S. stocks closing at record highs. 

     This was in contrast to the fast-paced sell-off in U.S. yields and the

dollar, seen last week when the market faced a wall of worries about North

Korea, the devastation from Hurricane Harvey and Hurricane Irma, and U.S.

geopolitical concerns. 

     Ten-year U.S. Treasury yields were last near 2.192%, after trading in a

2.155% to 2.199% range. Wednesday's U.S. yield high is the highest since August

25, when yields topped out at 2.201%. 

     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 0.401% Wednesday, after trading in

a 0.383% to 0.413% range. 

     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 UK Gilt yields closed around 1.145%, after trading in a 1.111% to

1.153% range. The Sept. 8 low of 0.951% was the lowest since June 15, when

yields tested lows near 0.938% and Tuesday's highs the highest since August 8,

when UK yields hit 1.161%.

     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 0.023%. 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. 

     In currencies, the euro held near $1.1884 in late afternoon action, on the

low side of a $1.1873 to $1.1995 range. 

     The Sept. 8 high of $1.2092 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. 

     Only last 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 Y110.55, on the high side of a

Y109.91 to Y110.69 range. 

     The pair topped out August 31 at Y110.67, which will be the next topside

target and subsequently tracked U.S. Treasury yields lower.

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

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

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

     In commodities, spot gold held near $1,322.45 per ounce, after trading in a

$1,320.95 to $1,337.18 range. The earlier low is the lowest since Sept. 1, when

gold bottomed around $1,216.52. 

     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 pullback, there is still 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.

     Crude prices rose Wednesday, despite EIA inventory data showing a crude

stock increase of 5.89 million barrels in the latest week. Analysts warned that

data will be skewed for weeks to come. 

     In its Short-Term Energy Outlook, released Tuesday, the EIA stated: "EIA

expects much of the reduction in refinery production of petroleum products to be

offset by a decline in petroleum product net exports."

     The EIA looked for net petroleum product exports to average 1.1 million b/d

in September, which is down from an average of 2.9 million b/d during the first

eight months of 2017. 

     "A reduction in net exports can either come from a decrease in exports or

an increase in imports," the EIA said. 

     "Additionally, the reduction in production of petroleum products could

contribute to larger-than-typical inventory draws for September," the report

said.

     NYMEX October light sweet crude oil futures settled up $1.07 at $49.30 per

barrel, after trading in a $48.12 to $49.40 (after hours) range. 

     The front contract peaked Sept 6 at $49.42 and at the time stalled ahead of

its 200-day moving average, currently at $49.54. 

     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.

     WTI posted a high of $50.22 on August 10. 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. 

     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. 

     In U.S. stocks, the S&P 500 closed up 0.08% at 2,498.37, after trading in a

2,492.14 to 2,498.37 range. This is a life-time high close and a life-time

intraday high. 

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

bottomed at 2,412.79. 

     At Wednesday's close, the S&P 500 was up 11.6% year-to-date. 

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

leads larger stock swings.

     The Russell 2000 closed up 0.24% at 1,426.89, down from an earlier high of

1,428.745. The index posted a high of 1,452.091 July 25. 

     Only a few weeks ago, the index 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.

     The Dow Jones Industrial Average and Nasdaq Composite posted new life-time

high closes of 22,158.18 and 6,460.19 respectively, but failed to revisit the

life-time intraday highs of 22,179.11, seen August 8 and 6,460.841, seen July

27. 

     On risk appetite, the CBOE's volatility index or VIX was last at 10.50, in

the middle of a 10.33 to 10.86 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 and now also in September, the VIX has traded both sides of its

200-day moving average, currently at 11.59. 

     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, the market will eye August CPI data, due out Thursday. MNI's

median estimate is 0.3% for headline and 0.2% ex-food and energy. See MNI US

Data Preview for details and check out the latest REALITY CHECK on rental

trends, on MNI Main Wire at 12:15 p.m. ET and 10:48 a.m. ET respectively. 

     The Bank of England monetary policy decision will also be of interest. See

MNI BOE Preview on the Main Wire at 11:32 a.m. ET. 

     --follow MNIEyeonFX on twitter.com --

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

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