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Market Sentiment Provides Key Driver

JAPAN DATA

Japan Oct Household Spending Down 0.6% y/y

By Vicki Schmelzer
     NEW YORK (MNI)   - Two of the three major U.S. stock markets posted new
life-time intraday highs  Tuesday, only to back off into the close.
     The Dow Jones Industrial Average and S&P 500 put in record highs of
22,179.11 and 2,490.87 respectively earlier, before closing down 0.15% and
0.24%, at 22,085.34 and 2,474.92. 
     The Nasdaq Composite closed down 0.21% at 6,370.46, down from an earlier
high of 6,423.345 and from the life-time high of 6,460.841, posted July 27. 
     Despite the market's vertigo at such lofty equity valuations, analysts
offered  myriad reasons for why stocks might keep climbing in the near-term. See
MNI Main Wire story at 12:02 p.m. ET for details.
     On the fixed income front, ten-year U.S. Treasury yields were last near
2.273%, after trading in a 2.253% to 2.289% range. Yields hit a low of 2.218%
August 3 and posted a high near 2.289% Friday in the wake of the release of
upbeat U.S. non-farm payroll data. 
     On the day, in addition to a rise in the NFIB small business optimism index
to 105.2 in July from 103.6 in June, U.S. yields got a lift from the Bureau of
Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) data, which
showed job openings rose to 6.2 million as per June 30, with a job openings rate
of 4.0%.
     Both data sets pointed to an improving U.S. economy, analysts said.
     While the 10-year yields remained above the 55-day moving average,
currently at 2.247%, the market will be reluctant to become bearish towards U.S.
Treasuries until the 200-day moving average, at 2.314%, 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 0.474% Tuesday, after trading in a
0.454% to 0.480% range. 
     Bund yields backed off after the ECB left policy unchanged July 20, but up
until last week, 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 1.157%, after trading in a 1.135% to
1.161% 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 0.072%. 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 $1.1750, in the middle of a $1.1715 to
$1.1824 range. The earlier low was the lowest since July 28, when the pair
bottomed near $1.1671. 
     Last week's 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 held around Y110.40 Tuesday, on the low side of a Y110.25 to
Y110.83 range. The pair traded in a Y109.85 to Y111.05 range Friday, also last
week's range. 
     The August 4 low was the lowest level since June 15, when dollar-yen
troughed at Y109.27. Yen traders continued to fret a sustained close below the
psychological Y110 mark. 
     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 $1,260.35 per ounce, after
trading in a $1,251.61 to $1,265.31 range, The August 1 high of $1,274.16 was
the highest since June 14 when gold peaked at $1,280.77 and the precious metal
has edged lower subsequently. 
     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 gold peaks,
whereas a break below the 200-day moving average, around $1,230 would suggest
scope for further losses. 
     NYMEX September light sweet crude oil futures settled down $0.22 at $49.17
per barrel, after trading in a $48.86 to $49.79 range. 
     On August 1, West Texas Intermediate saw a wide range of $48.37 to $50.43,
with that day's high the highest since late May. The August 1 range has
subsequently acted as both 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 has traded both sides of its 200-day moving average,
currently at $49.38. 
     Trading continued to be driven by supply rather than demand, with concern
about OPEC/non-OPEC non-compliance as well as increased U.S. production. 
     The extraordinary session taking place in Abu Dhabi Monday and Tuesday
between the Joint OPEC/non_OPEC Technical Committee (JTC) and country
representatives that participate in the Declaration of Cooperation (production
cuts) concluded earlier. 
     "The objective of the meetings was to discuss conformity with the voluntary
production adjustments outlined in the extension of the Declaration, which
became effective on 1 July 2017," OPEC said in a statement. 
     OPEC said "participating countries remain steadfast in their commitment to
fulfil" the production cut agreement. 
     "The UAE, Iraq, Kazakhstan, and Malaysia all expressed their full support
for the existing monitoring mechanism and their willingness to fully cooperate
with the JTC and JMMC in the months ahead in order to achieve the goal of
reaching full conformity," OPEC said. 
     Crude, while off earlier highs, remained underpinned by the prospects of
improved compliance.
     In terms of risk appetite, with U.S. stocks backing off the record highs
posted earlier, the CBOE's volatility index or VIX was last around 11.02, in the
middle of a 9.52 to 11.52 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 11.98,
to suggest risk appetite was waning. The VIX last closed above its 200-day
moving average in mid-May, but then only briefly.
     Other than EIA crude stock data mid morning, Wednesday's U.S. calendar is
light, with no key data sets. 
     --follow MNIEyeonFX on twitter.com --
--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com
[TOPICS: MNUEQ$,M$U$$$,MI$$$$,M$$FI$,MN$FI$,MN$FX$]