OnTheRadar: US Stocks Buoyant At Life Highs; Ylds, USD Firm

By Vicki Schmelzer

     NEW YORK (MNI) - U.S. stocks remained buoyant and traded at record highs

Monday, with market players keenly interested in, but not overly concerned about

this week's Federal Reserve decision. 

     At the start of a new week, U.S. Treasury yields and the dollar maintained

the bulk of recent gains, but showed no willingness to push higher until after

Fed thinking is made known. 

     In terms of the Fed decision, no change in the fed funds rate is expected

Wednesday, but the market wants to hear what the central bank plans to do with

its $4.5 trillion balance sheet going forward. 

     "With little doubt on the balance sheet, the key unknown facing markets is

how policymakers frame the outlook for future rate hikes at a time when

inflation has fallen short," said Jean Yung, MNI Fed watcher in her FOMC Preview

Monday. 

     Ten-year U.S. Treasury yields were last near 2.232%, after trading in a

2.208% to 2.236% range. Monday's yield high was the highest since mid August. 

     Ten-year U.S. yields were flirting with their first topside hurdle in the

form of the 55-day moving average, at 2.232%. Yields have been below their

55-day moving average since mid-August. 

     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 0.455% Monday, after trading in a

0.426% to 0.465% range. The earlier high was the highest since August 16, when

Bund yields peaked near 0.468%. 

     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 Japanese government bond yields closed around 0.029%. When U.S.

and other global yields were at recent lows earlier in September, 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. 

     Ten-year UK Gilt yields closed around 1.302%, after trading in a 1.296% to

1.336% range.  

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

lows near 0.938% and Friday's high near 1.341% was the highest since Feb. 6,

when UK yields hit 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%.

     In currencies, the euro held near $1.1951 late Monday, little changed from

Friday's closing levels and in the middle of a tight $1.1915 to $1.1969 range. 

     The pair bottomed Sept. 14 near $1.1838, and stalled ahead of the August 31

lows near $1.1823, seen as initial support. 

     Only last month, on August 17, the euro bottomed near $1.1662, the lowest

level since July 27, when the pair bottomed near $1.1650. As the dollar slipped

overall, the euro recovered. 

     The Sept. 8 high of $1.2092, seen at the peak of dollar selling, 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. 

     In other pairs, dollar-yen held near Y111.52, on the high side of a Y110.83

to Y111.66 range. The earlier high was the highest since July 27, when the pair

peaked near Y111.71, which will be the next topside hurdle. The July 26 high was

$112.20 and the 200-day moving average comes in currently at Y112.26. 

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

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

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

     Cable was closing around $1.3494, on the low side of a $1.3465 to $1.3619

range. 

     The earlier high was the highest since early June 24, the day after Brexit,

when the pair traded in a wide $1.3229 to $1.5018 range. Sterling closed above

$1.3500 Friday for the first time since June 24, underpinned by deemed hawkish

Bank of England comments. 

     In commodities, spot gold held near $1,307.85 per ounce, after trading in a

$1,304.71 to $1,320.14 range. 

     Support is seen at the psychological $1,300 mark and the August 31 low is

$1,298.46. 

     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 gold pullback below $1,300, 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.

     NYMEX October light sweet crude oil futures settled up $0.02 at $49.91 per

barrel, after trading in a $49.19 to $50.33 range. 

     On Sept. 14, the pair vaulted its 200-day moving average, currently at

$49.58, and took out late July/early August peaks in the $50.22 to $50.43 to

post nearly a four-month high of $50.50 before backing off. West Texas

Intermediate has not yet settled above $50. WTI last closed above the

psychological $50 mark July 31 

     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.

     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. 

     Baker Hughes rig count data, released  Friday, showed a seven rig decline

to 749 rigs in U.S. "oil-only" rigs for the week ending Sept. 15. This is less

than double the 416 rigs seen a year ago. Rigs are still down 53.4% from the

peak rig count of 1,609 rigs seen Oct. 10, 2014.

     In U.S. stocks, the S&P 500 closed up 0.15% at 2,503.87, after trading in a

2,500.90 to 2,508.32 range. The earlier high was a life-time intraday high and

this is a life-time high close.

     At Monday's close, the S&P 500 was up 11.8% year-to-date. 

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

leads larger stock swings.

     The Russell 2000 closed around 1,441, down from an earlier high of

1,444.269, which is still below the 1,452.091 life-time high seen July 25. 

     Last month, the index bottomed at 1,349.354 on August 18, the lowest level

since April 17, when the Russell 2000 bottomed at 1,345.363.

     Earlier Monday, the Dow Jones Industrial Average posted a new intraday high

of 22,352.62 and had a new life-time high close of 22,331.35. 

     The Nasdaq Composite closed at 6,454.64. The index peaked at a new

life-time intraday high of 6,477.767 earlier and this was a new life-time

closing higher. 

     On risk appetite, the CBOE's volatility index or VIX was last at 10.15, in

the middle of a 9.88 to 10.42 range. The index is below its 200-day moving

average, at 11.54. 

     The VIX high of 17.28, seen August 11, 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 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). 

     --follow MNIEyeonFX on twitter.com --

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

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