OnTheRadar: Trump Angst, Barcelona Terror Prompt Risk Unwinds

--US Stocks Close Below Old August Lows, Key Supports As Risk Sentiment Wobbles

By Vicki Schmelzer

     NEW YORK (MNI)   - Uncertainty about the health and stability of the Trump

administration weighed on risk appetite Thursday.

     There was already lingering demand for safe-havens at the start of the U.S.

session and risk sentiment wobbled further when a van drove into a crowd in

Barcelona, Spain, in what was later deemed a terrorist incident. Spanish

officials reported that 13 people are dead, with at least 50 others injured.

     U.S. stocks fell sharply as a result of geopolitical and terrorist events,

with U.S. Treasury yields and the dollar also coming under downward pressure

against the majors. 

     The S&P 500 closed down 1.54% at 2,430.01, on the low side of a 2,430.01 to

2,465.02 range. 

     At the closing levels, the index was up 8.5% year-to date and down 2.4%

from the life-time intraday high of 2,490.87, seen August 8. 

     The S&P 500 has closed below recent lows of 2,437.85, seen August 11, and

2,437.75, seen August 10, which were the lowest levels since mid July. 

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

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

27. The indexes closed  at 21,750.73 and 6,221.91 respectively. 

     Market players were also keeping an eye on the Russell 2000 index, which

often leads larger stock swings. The index, closing down 1.78% at 1,358.94,

earlier took out the August 11 low of 1,368.332 to post a low of 1,358.80.

     In addition to closing below the August 11 low, the Russell 200 was closing

below the 200-day moving average, around 1,374, which targeted a move back to

the May 31 low of 1,354.855. 

     On risk appetite, the CBOE's volatility index or VIX was last 15.54, on the

high side of a 11.54 to 15.77 range. 

     The VIX high of 17.28, seen August 11 at the peak of escalating 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. 

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

currently 11.94. 

     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). 

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

2.189%, after trading in a 2.189% to 2.246% range.

     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, and then edged

lower as risk appetite waned. 

     The August 11 yield low of 2.184% was the lowest since June 27, when

ten-year U.S. yields bottomed near 2.126%. U.S. yields managed to recover

subsequently, but failed to vault last week's highs. 

     The market will tilt bullish towards U.S. Treasuries unless the 200-day

moving average, at 2.329%, 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 0.426% Thursday, after trading in a

0.423% to 0.446% range. 

     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.

     Ten-year UK Gilt yields closed around 1.087%, after trading in a 1.076% to

1.120% 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 $1.1728 late Thursday, in the middle of a

$1.1662 to $1.1790 range. 

     The earlier euro low was the lowest level since July 27, when the pair

bottomed near $1.1650. 

     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 Y109.54, after

trading in a Y109.45 to Y110.37 range. The pair topped out around Y110.95

Wednesday. 

     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%. 

     In commodities, spot gold was closing near $1,289.10 per ounce, after

trading in a $1,281.83 to $1,290.20 range. 

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

topped out near $1,292.10 August 11, 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 up $0.31 at $47.09

per barrel, after trading in a $46.46 to $47.19 range. The earlier low was the

lowest since July 25, when West Texas Intermediate bottomed at $46.38. 

     Earlier, the front contract broke below the 55-day moving average, at

$46.54. From July 25 onward, WTI has closed above its 55-day moving average. 

     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

shift 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. 

     Looking ahead, given current risk jitters, the market may not pay much

attention to Friday's release of preliminary University of Michigan's consumer

sentiment data. MNI's median estimate looks for the headline index to rise to

94.0 in August from 93.4 in July.

     --follow MNIEyeonFX on twitter.com --

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

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