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CROSS ASSET

ECB's Stournaras Buoys Bunds, EUR

GILT SUMMARY

BoE Comments Underpin Short-End Sell Off

CORN TECHS

(K1) Stabilises

OPTIONS

Expiries for Mar 01 NY cut 1000ET (Source DTCC)

--Lowest 10-yr US Tsy Yld Close Since Nov. 9
By Vicki Schmelzer
     NEW YORK (MNI)   - U.S. stocks continued their march higher Thursday, while
other instruments remained rangy ahead of the release of key U.S. non-farm
payroll data for August. 
     MNI's median estimate for headline payrolls is 180,000, with a range of
160,000 to 200,000. The unemployment rate is seen unchanged at 4.3%, with
average hourly earnings at 0.2%. 
     Revisions to prior months and the participation rate will also be closely
eyed. 
     Barring an outlier, a roughly as-expected U.S. jobs report may not cause
much excitement in financial markets given that many players will have one foot
out the door ahead of the long Labor Day weekend. 
     This week, MNI spoke to recruiters across the U.S. about wage inflation and
hiring. See MNI Main Wire stories at 10:18 a.m. ET and 10:28 a.m. ET for
details. 
     On the fixed income front, 10-year U.S. Treasury yields were last near
2.122%, in the middle of a tight 2.119% to 2.152% range. 
     While 10-year U.S. yields were lower earlier in the week, this is the
lowest yield close in 2017 and the lowest yield close since Nov. 9, 2016, the
day after the U.S. election, when yields closed around 2.073%. 
     On August 29, 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 0.361% Thursday, after trading in a
0.351% to 0.381% range. 
     The August 29 yield low of 0.320% was the lowest Bund yield since June 27,
when yields troughed at 0.238%. 
     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 1.034%, after trading in a 1.024% to
1.049% range. Gilt yields bottomed at 0.987% August 29, 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 0.010%, 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 $1.1904 late Thursday, on the high side
of a $1.1823 to $1.1910 range. 
     The August 29 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, on August 17, the euro posted a low of $1.1662, which was the
lowest level since July 27, when the pair bottomed near $1.1650. 
     In other pairs, dollar-yen was closing near Y109.95, on the low side of a
Y109.88 to Y110.67 range. 
     On August 29, dollar-yen posted a low of Y108.27, 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, and those old highs will now act as initial resistance. 
     In commodities, spot gold was closing near $1,322.35 per ounce, after
trading in a $1,298.46 to $1,323.70 range. Gold posted a high of $1,326.89
August 29. 
     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.
     A weaker dollar and a rethink of Hurricane Harvey's impact on production
saw crude prices recovering Thursday. 
     NYMEX October light sweet crude oil futures settled up $1.27 at $47.23 per
barrel, after trading in a $45.58 to $47.47 range. Thursday's low was the lowest
since July 24, when the front contract posted a low of $45.40. 
     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. 
     Gasoline prices continued to creep higher. 
     The AAA National Fuel Gauge put the cost of regular unleaded gasoline at
$2.449% per gallon Thursday, versus $2.404 Wednesday, $2.348 a week ago, $2.316
a month ago and $2.223 a year ago. Average gas prices are up 4.3% on the week. 
     In a statement Thursday, the Port of Corpus Christi said, "Hurricane Harvey
has significantly impacted the entire Texas gulf coast with the petroleum
refining centers of Corpus Christi, Houston, Port Arthur, Beaumont, and Lake
Charles Louisiana either completely shutdown or significantly scaled back
operations."
     "It is estimated only 25% of the refining capacity in the region is
operational," the Port said. 
     Initial estimates of the damage from Hurricane Harvey put the storm in the
top five of most damaging hurricanes in terms of economic cost. 
     American Shipper's daily Thursday quoted global risk modeling and analytics
firm Risk Management Solutions as saying their model estimates that the economic
loss "could be as high as $70-$90 billion in total from wind, storm surge and
inland flood." 
     Wikipedia puts the damage from Katrina (in 2005) at $108 billion and Sandy
(in 2012) at $75 billion.
     In U.S. stocks, the S&P 500 closed up 0.57% at 2,471.65, after trading in a
2,462.65 to 2,475.01 range. 
     The August 21 low of 2,417.35 was the lowest since July 11, when the index
bottomed at 2,412.79. 
     At Thursday's close, the S&P 500 was up 10.4% year-to date and down 0.8%
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 around 1,404, 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.
     Thursday's close above an old pivot zone of old lows/highs in the
1,390-1,400 was deemed promising, but budding bulls will watch for a close above
the 55-day moving average, currently a bit above 1,407. 
     On risk appetite, the CBOE's volatility index or VIX was last at 10.59, on
the low side of a 10.34 to 11.22 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 11.65. 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). 
     Looking ahead to next week, all eyes will be on Thursday's European Central
Bank decision and whether the central bank announces any information about its
bond buying program. A host of Fed speakers will also be making the rounds.  
     --follow MNIEyeonFX on twitter.com --
--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com
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