OnTheRadar: US Ylds, US Stks Hold Firm Ahead Of Fed Decision.

By Vicki Schmelzer

     NEW YORK (MNI) - U.S. Treasury yields and U.S. stocks held a firm tone

ahead of Wednesday's Federal Reserve decision, and remained not far from the

day's highs. 

     No change in the fed funds rate is expected, with all eyes instead on a

potential start of normalization of the Fed's $4.5 trillion balance sheet.

     Market players are also eager to see whether there is anything in the Fed's

accompanying statement or press conference to cement a 25 basis point hike in

December. 

     Because of uncertainty about inflation, BMO Capital Markets chief economist

Michael Gregory put the odds of a December hike at roughly 60% or "only a bit

above even" despite the promising CPI data for August. 

     "Yet another reason for increased policy caution for the next few months is

the fact that it's going to be more difficult to discern the economy's

underlying trend because the data will be impacted by Hurricanes Harvey and

Irma," he said.

     Ten-year U.S. Treasury yields were last near 2.246%, after trading in a

2.215% to 2.246% range. Tuesday's yield high was the highest since August 17,

when yields peaked near 2.246%. 

     Ten-year U.S. yields continued to struggle to decisively vault the first

topside hurdles in the form of the 55-day and 100-day moving averages, at 2.231%

and 2.237%. Yields have remained below these markers 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 0.452% Tuesday, after trading in a

0.432% to 0.462% range. Monday's high of 0.465% 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 0.033%. 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. 

     The Bank of Japan meets Thursday, with no change in rates expected. 

     Ten-year UK Gilt yields closed around 1.329%, after trading in a 1.281% to

1.334% 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 $1.1993 late Tuesday, in the middle of a

tight $1.1950 to $1.2007 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 Y111.61, in the middle of a Y111.20 to

Y111.88 range. 

     The earlier high was the highest since July 26, when the pair peaked near

Y112.20, which will be the next topside hurdle. The 200-day moving average comes

in currently at Y112.25. 

     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 $1.3522, in the middle of a $1.3469 to $1.3552

range. 

     Monday's high near $1.3619 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 last Friday for the first time since June 24,

underpinned by deemed hawkish Bank of England comments. 

     In commodities, spot gold held near $1,310.85 per ounce, after trading in a

$1,305.26 to $1,311.80 range. The precious metal bottomed at $1,304.71 Monday. 

     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 sustained 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 down $0.43 at $49.48

per barrel, after trading in a $49.33 to $50.42 range. 

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

$49.57, and took out late July/early August peaks in the $50.22 to $50.43 area

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 the OPEC/non-OPEC production cuts. 

     The extension was largely priced in and oil fell to $42.05 on June 21.

Rumors continue to swirl that OPEC may extend the current agreement, set to

expire in March 2018, until the end of next year. 

     API and EIA crude inventory data may pack less punch than usual given the

expected skew from Hurricane's Harvey and Irma. 

     In U.S. stocks, the S&P 500 closed up 0.11% at 2,506.65, after trading in a

2,503.19 to 2,507.84 range. This is a record high close for the index. On

Monday, the S&P 500 posted a new life-time intraday high of 2,508.32. 

     At Tuesday's close, the S&P 500 was up 12.0% year-to-date. 

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

leads larger stock swings.

     The Russell 2000 closed around 1,440, down from this week's high of

1,444.269, seen Monday, which was still below the 1,452.091 life-time high

posted 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 Tuesday, the Dow Jones Industrial Average posted a new intraday

high of 22,386.01. The index closed at a new life-time high close of 22,370.80. 

     The Nasdaq Composite closed at 6,461.32, which was a new life-time high

close. The index peaked at a new life-time intraday high of 6,477.767 Monday.  

     On risk appetite, the CBOE's volatility index or VIX was last at 10.18, in

the middle of a 9.85 to 10.30 range. The index is below its 200-day moving

average, at 11.52. 

     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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