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OnTheRadar: US Tsy Ylds, USD Rise On Unwinds As Fears Fade

--S&P 500 Posts Record Intraday High, Record Close
By Vicki Schmelzer
     NEW YORK (MNI) - After flirting with November lows last week, U.S. Treasury
yields plodded higher Tuesday, dragging the dollar up also. 
     U.S. stocks firmed in tandem with yields and the dollar as all instruments
reacted to a lessening of risk jitters. The S&P 500 posted a new record intraday
high and closed at a record high. 
     That North Korea did not launch a missile on the weekend and Hurricane
Irma, while still a devastating storm, could have been far worse, allowed risk
sentiment to recover. 
     Add to the mix President Donald Trump's willingness to work with both
parties to pass tax legislation and market players were feeling more upbeat than
in prior sessions.
     Ten-year U.S. Treasury yields were last near 2.165%, after trading in a
2.125% to 2.180% range
     Friday's 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 0.401% Tuesday, after trading in a
0.338% to 0.405% range. 
     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 UK Gilt yields closed around 1.135%, after trading in a 1.054% to
1.147% range. The Sept. 8 low of 0.951% was the lowest since June 15, when
yields tested lows near 0.938% and Tuesday's highs the highest since August 8,
when UK yields hit 1.161%.
     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 0.033%. Last week,
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. 
     In currencies, the euro held near $1.1963 in late afternoon action, in the
middle of a $1.1926 to $1.1978 range. 
     The Sept. 8 high of $1.2092 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. A
few weeks earlier, the euro posted a high near $1.2570 on Dec. 16, 2014. 
     Only last 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 trading near Y110.16, on the high side of a
Y109.24 to Y110.25 range. 
     The pair topped out August 31 at Y110.67, which will be the next topside
target and subsequently tracked U.S. Treasury yields lower.
     On Sept. 8, as U.S. Treasury yields were testing their lows and risk
aversion was high, dollar-yen bottomed at Y107.32, which was the lowest level
since Nov. 14 2016, when the pair bottomed at Y106.51. 
     In commodities, spot gold held near $1,331.75 per ounce, after trading in a
$1,322.71 to $1,332.01 range. 
     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. 
     All eyes now are on a move towards 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.
     JP Morgan technical strategist Thomas Anthonj recommended a gold long
position, looking for a "broader advance to at least $1,452," with a "strong
option to extend to $1,655."
     Crude prices remained buoyant but off this week's highs. 
     NYMEX October light sweet crude oil futures settled up $0.16 at $48.23 per
barrel, after trading in a $47.73 to $48.44 range. 
     The front contract peaked Sept 6 at $49.42 and stalled ahead of its 200-day
moving average, currently at $49.52. West Texas Intermediate is holding above
its 55-day moving average, at $47.28. 
     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.
     WTI posted a high of $50.22 on August 10. 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. 
     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. 
     Earlier, OPEC released its Monthly Oil Market Report for September. 
     "Based on the current global oil supply/demand balance, OPEC crude in 2017
is estimated at 32.7 mb/d, around 0.5 mb/d higher than 2016. Similarly, OPEC
crude in 2018 is estimated at 32.8 mb/d, about 0.2 mb/d higher than in 2017,"
the report said. 
     In a special section on Hurricane Harvey, OPEC noted that the negative
effects on the U.S. economy should be "relatively minor, as disruptions are
expected to be largely offset by the increase in activities related to the
rebuilding efforts including $15.25 billion in aid approved by Congress." 
     The impact on U.S. oil demand "is expected to be negligible, with
offsetting revisions seen for 4Q17," the report said. 
     However, "the emergence of Hurricane Irma and other storms raises the
possibility of the 2017 hurricane season being particularly destructive, with
potential implications for the oil market," OPEC said. 
     With hurricanes damage bad, but less damaging than had been feared,
gasoline prices have edged down from recent highs.
     The AAA National Fuel Gauge put the average cost of regular unleaded
gasoline at $2.661 per gallon Tuesday.
     This compared to $2.668 Monday, $2.648 a week ago, $2.356 a month ago and
$2.17 a year ago. Average gas prices are 12.9% on the month. 
     As a point of comparison, the record price for regular unleaded gasoline
was $4.114, seen July 17, 2008, before the start of the U.S. financial crisis. 
     In U.S. stocks, the S&P 500 closed up 0.34% at 2,496.48, after trading in a
2,490.37 to 2,496.77 range. This is a life-time high close and a life-time
intraday high. 
     The August 21 low of 2,417.35 was the lowest since July 11, when the index
bottomed at 2,412.79. 
     At Tuesday's close, the S&P 500 was up 11.5% year-to-date. 
     Market players were also monitoring the Russell 2000 index, which often
leads larger stock swings.
     The Russell 2000 closed up 0.61% at 1,423.46, down from an earlier high of
1,423.93. The index posted a high of 1,452.091 July 25. 
     Only a few weeks ago, the index posted a low of 1,349.35 August 18, which
was the lowest level since April 17, when the Russell 2000 bottomed at
1,345.363.
     On risk appetite, the CBOE's volatility index or VIX was last at 10.64, in
the middle of a 10.29 to 10.95 range. 
     The VIX high of 17.28, seen August 11 at the peak of U.S.-North Korea
tensions, was the highest since Nov. 9, the day after the U.S. election, when
the VIX peaked at 21.48. The 2017 high was 23.01, seen Nov. 4 ahead of the
election. 
     In August and now also in September, the VIX has traded both sides of its
200-day moving average, currently at 11.59. 
     The July 26 low of 8.84 was a new life-time intraday VIX low (prior
life-time intraday low was 8.89, seen Dec. 27, 1993). 
     Looking ahead, the market will eye August PPI data, due out Wednesday.
MNI's median estimate is 0.3% for headline and 0.2% ex-food and energy. EIA
crude inventory data, due out at 10:30 a.m. ET, will also be of interest. 
     --follow MNIEyeonFX on twitter.com --
--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com
[TOPICS: MNUEQ$,M$U$$$,MI$$$$,M$$FI$,MN$FI$,MN$FX$]

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