OnTheRadar: Solid Data, Unwinds Allow US Ylds, USD To Rise

--US Stks, Especially Tech Stks, Buoyant

By Vicki Schmelzer

     NEW YORK (MNI)   - Solid economic data, in the eurozone and U.S., combined

with unwinds of safe havens from prior sessions and repositioning ahead of the

long U.S. Labor Day holiday, allowed U.S. Treasury yields and the dollar to rise

Wednesday.

     U.S. stocks firmed also, with tech stocks especially buoyant.  

     Market players took comfort from the EMU Economics Sentiment Index, which

rose to 111.9 in August from a revised 111.3 (from 111.2) in July, as well as

from ADP data in the U.S. looking for 237,000 for August private payrolls. 

     Upbeat data and the lack of new "bad news" caused the market to reverse

some of the trades put on in recent sessions. 

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

2.138%, in the middle of a tight 2.133% to 2.154% range. 

     On Tuesday, 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, the lack of

more meaningful recovery still had 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 0.359% Wednesday, after trading in

a 0.348% to 0.373% range. 

     Tuesday's yield low of 0.320% was the lowest Bund yield since June 27, when

yields troughed at 0.238%. Bund yields were back above their 200-day moving

average, currently at 0.357%, after closing below that mark Tuesday for the

first time since late June.  

     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 1.030%, after trading in a 1.012% to

1.045% range. Gilt yields bottomed at 0.987% Tuesday, 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 0.015%, after

flirting with zero Tuesday for the first time since spring. On April 20, JGB

yields flirted with negative territory for the first time since last 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 $1.1886 late Wednesday, on the low side

of a $1.1883 to $1.1984 range. 

     Tuesday's 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, 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 was underpinned by rising U.S. Treasury yields

and unwinds of safe-haven yen longs. 

     The pair held near Y110.33 heading into the close, on the high side of a

Y109.55 to Y110.44 range. 

     Dollar-yen posted a low of Y108.27 Tuesday, the lowest level since April

17, when dollar-yen bottomed at Y108.13. 

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

August 4, with these old highs now acting as initial resistance. 

     In commodities, spot gold was closing near $1,308.10 per ounce, after

trading in a $1,305.28 to $1,313.78 range. Gold posted a high of $1,326.89

Tuesday. 

     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.

     NYMEX October light sweet crude oil futures settled down $0.48 at $45.96

per barrel, after trading in a $45.84 to $46.72 range. Tuesday's low of $45.76

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

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

currently at $46.63, which did not bode well for near-term recovery. 

     Crude took little comfort also from EIA data, released Wednesday, showed a

crude stock draw of 5.4 million barrels in the latest week. 

     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. 

     While oil prices remained on the defensive as the market awaited better

estimates of the damage from Hurricane Harvey, gasoline prices kept creeping

higher. 

     The AAA National Fuel Gauge put the cost of regular unleaded gasoline at

$2.404% per gallon Wednesday, which compared to $2.378 Tuesday, $2.344 a week

ago, $2.313 a month ago and $2.218 a year ago. 

     In U.S. stocks, the S&P 500 closed up 0.46% at 2,457.59, after trading in a

2,443.77 to 2,460.31 range. This compared to the Nasdaq Composite, which closed

up 1.05% at 6,368.31. The S&P 500 has struggled recently to decisively vault its

55-day moving average, around 2,450, but managed to finally do so Wednesday. 

     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 9.8% year-to date and down 1.3%

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, closing up 0.56% at 1,391.32  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.

     For three straight days, the Russell 2000 has closed above its 200-day

moving average, currently around 1,382, which suggested scope for additional

gains. 

     On risk appetite, the CBOE's volatility index or VIX was last at 11.15, on

the low side of a 10.96 to 11.98 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 11.67. 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 for August, due out Friday, and flash

eurozone inflation data for August, set for release Thursday, will be key

drivers ahead of the long Labor Day holiday weekend in the U.S. 

     MNI's median estimate for flash HICP is 1.4% and for flash core HICP 1.2%

versus 1.3% and 1.2% respectively final in July. 

     MNI's median estimate for U.S. non-farm payrolls is 180,000, with a range

of 160,000 to 200,000. The unemployment rate is seen unchanged at 4.3% and

average hourly earnings are seen rising by 0.2%. See MNI Main Wire story at

12:07 p.m. ET for details. 

     Thursday's U.S. line-up includes July personal income and spending data

along with pending home sales and the MNI Chicago Report for August. 

     --follow MNIEyeonFX on twitter.com --

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

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