OnTheRadar: Solid US NFPs Reminder Of Economic Strength

--US Tsy Ylds, USD Edge Up From Lows

--DJIA Posts Yet Another New Life-time High

By Vicki Schmelzer

     NEW YORK (MNI)   - Friday's release of July non-farm payroll data, showing

solid jobs gains, was a welcome reminder of the potential strength of the U.S.

economy.

     Non-farm payrolls rose by 209,000 last month, with 2,000 jobs added in

backward revisions. 

     The unemployment rate fell to 4.3% from 4.4% in June while the

participation rate rose to 62.9% in July from 62.8% in June.

     Average hourly earnings, of keen interest in terms of gauging future Fed

hikes, rose by 0.3%, in line with expectations. 

     The jobs data contained enough good news so that, despite lingering

geopolitical concerns, U.S. yields and the dollar edged higher. 

     Ten-year U.S. Treasury yields were last near 2.264%, after trading in a

2.219% to 2.289% range. Yields hit a low of 2.218% late Thursday. 

     This week, 10-year U.S. yields took out key technical support levels as

well as recent lows. While the 10-year yields was closing back above its 55-day

moving average, currently at 2.245%, market players will only become more

bearish towards U.S. Treasuries if the 200-day moving average, at 2.308%, 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. 

     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 0.468% Thursday, after trading in a

0.449% to 0.488% range. 

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

until this week, yields have held above 0.50% on expectations of new insight

into the central bank's bond buying plan, set to expire at the end of December,

either at the Jackson Hole symposium in late August or at the next monetary

policy meeting Sept. 7.  

     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 1.176%, after trading in a 1.140% to

1.181% range. Gilt yields and sterling were still on the defensive after

Thursday's Bank of England decision, with BOE Governor Mark Carney's comments

deemed more hawkish than expected.  

     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 0.064%. 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 other markets, FX traders stressed that even though the dollar rallied

Friday, especially against the euro and sterling, sustained gains would be

needed before market players turned bullish again.

     The euro was closing the week near $1.1780, on the low side of a $1.1728 to

$1.1889 range. Earlier, the pair was nearly back at this week's low around

$1.1723, seen Monday.

     The euro posted a 30-month high near $1.1910 Wednesday, 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 of late, held around Y110.68 late

Friday, on the high side of the day's Y109.85 to Y111.05 range. This was also

the range for the week. 

     The earlier low was the lowest level since June 15, when dollar-yen

troughed at Y109.27. 

     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%. 

     More recently, dollar yen rallied to Y112.20 July 26, which was the highest

level since July 20, when the pair peaked at Y112.42.

     In commodities, spot gold was closing near $1,258.40 per ounce, after

trading in a $1,254.29 to $1,270.33 range, Tuesday's high of $1,274.16 was the

highest since June 14 when gold peaked at $1,280.77. 

     On June 6, the precious metal 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. A break above the June 14 highs will target the early June

peaks. 

     NYMEX September light sweet crude oil futures settled down $0.55 at $49.58

per barrel, after trading in a $48.50 to $49.64 range. The front contract posted

a high near $49.96 Thursday.

     On Tuesday, West Texas Intermediate saw a wide range of $48.37 to $50.43,

with that day's high the highest since late May. Tuesday's range continued to

act as support and resistance. 

     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. 

     This week, WTI traded both sides of its 200-day moving average, currently

at $49.39. 

     Baker Hughes rig count data, released Friday, showed a one rig decrease to

765 rigs for U.S. "oil-only" rigs in the week ending August 4. This is still

more than double the 381 rigs seen a year ago. However, rigs were still down

52.5% from the peak rig count of 1,609 rigs seen Oct. 10, 2014.

     In U.S. stocks Friday, the DJIA closed at a new life-time high close of

22,092.81, which was also a new life-time intraday high.  

     On July 27, Nasdaq Composite and S&P 500 posted new life-time intraday

highs of 6,460.841 and 2,484.04 respectively, before succumbing to profit-taking

in subsequent sessions. 

     The S&P 500 closed up 0.19% at 2,476.83. At Friday's close, the index was

up 10.6% year-to-date. 

     Traders were also keeping track of the Russell 2000 index, which often

leads larger equity moves. 

     The Russell 2000, closing at 1,412.33, posted highs near 1,452 on July 21,

July 25 and July 26 and moved lower subsequently, closing Thursday below its

55-day moving average, currently near 1,411, and posting a low near 1,402.389.

The index stalled ahead of a larger support zone of old lows in the 1,395-1,400

from mid June to early July. 

     The CBOE's volatility index or VIX was last around 10.00, in the middle of

a 9.68 to 10.50 range. 

     The July 26 low of 8.84 was a new life-time intraday VIX low. The prior

life-time intraday low was 8.89, seen Dec. 27, 1993. 

     The VIX posted a high of 16.30 on May 18 at the peak of risk aversion, not

far from the 16.28 high seen April 17 that was driven by North Korea concerns.

     It would take a close above the 200-day moving average, currently at 12.02,

to suggest risk appetite was waning. The VIX last closed above its 200-day

moving average in mid-May, but then only briefly.

     While there is a host of key Chinese data next week, the U.S. line-up is

light, with only PPI and CPI, due out Thursday and Friday, in terms of major

data. 

     --follow MNIEyeonFX on twitter.com --

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

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