OnTheRadar: US Stocks Recover Further; Other Instruments Rangy

--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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