OnTheRadar: US Ylds, USD Going Nowhere Fast; Q2 GDP, ECI Eyed

--DJIA, Nasdaq, S&P 500 Post New Lifetime Intraday Highs, Then Succumb To

Prft-tking

By Vicki Schmelzer

     NEW YORK (MNI)   - Thursday's release of June trade and durable goods data

was enough to prompt some economists to raise their Q2 GDP forecasts, but failed

to push U.S. Treasury yields and the dollar higher. 

     While U.S. Treasury yields and the dollar are up from recent lows, it may

take more than a solid Q2 GDP reading Friday to get the party started again. 

     June durable goods rose 6.5%, with ex-transportation at 0.2%, while June

trade data showed the deficit narrow to $63.9 billion from a revised $66.3

billion in May.

     Heading into the numbers, MNI's median estimate for advance Q2 GDP was 2.6%

versus the 1.4% gain in the third reading for Q1. The pre-data Q2 range was 1.9%

to 3.0%.

     The MNI survey has been updated and now shows an expectation for a 2.7%

increase in advance GDP for Q1, with a range of 1.9% to 3.5%. See MNI Main Wire

story at 11:41 a.m. ET for details. 

     Ten-year U.S. Treasury yields were last near 2.314%, after trading in a

2.276% to 2.326% range. As background, yields traded near 2.32% ahead of

Wednesday's Fed announcement. 

     The July 21 and July 24 low yield of 2.229% was the lowest since June 29,

when U.S. yields bottomed near 2.221%. 

     After last week's decisive close below the 55-day and 200-day moving

averages, which stand currently at 2.253% and 2.293% respectively, the market

watched to see if yields can maintain a toehold above these marks. 

     U.S. Treasury yields bottomed June 14 near 2.103%, which was the lowest

since 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%.

     U.S. yields subsequently recovered, with the June lows deemed overdone,

with 10-year yields rising to 2.396% July 7, the highest since mid-May. 

     As background, U.S. Treasury yields topped out 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 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 0.536% Thursday, after trading in a

tight 0.509% to 0.543% range. 

     Bund yields backed off after the ECB left policy unchanged July 20, but did

not slip too far as many still expect new insight into the central bank's bond

buying plan, set to expire at the end of December, either at the Jackson Hole

symposium in late August or at the next monetary policy meeting Sept. 7.  

     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 1.203%, after trading in a 1.186% to

1.223% range. The July 7 high 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 0.072%. Yields hit

highs near 0.108% on 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 high yields compare to April 20, when JGB yields flirted with

negative territory for the first time since last November and 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 FX, the dollar slipped sharply in overnight action and spent the rest of

the day trying to recover.

     The euro was closing near $1.1677, on the low side of a $1.1650 to $1.1777

range.

     The next euro resistance level is $1.1793, the Jan. 15, 2015 high. The 2015

euro high was $1.2109, seen Jan. 1. And two weeks earlier, on Dec. 16, 2014, the

euro peaked at $1.2570. 

     Dollar-yen held around Y111.26 Thursday, after trading in a Y110.78 to

Y111.71 range. 

     Wednesday's high near Y112.20 was the highest level since July 20, when the

pair peaked at Y112.42 and Monday's lows near Y110.62 were the lowest since June

15, the pair troughed at Y109.27. 

     Dollar-yen bottomed at Y108.83 June 14, the day U.S. 10-year yields posted

their most recent low of 2.103%, and then tracked U.S yields higher, topping out

near Y114.49 July 11, the highest level since mid March, around the same time

10-year yields hit 2.396%. 

     In commodities, spot gold was closing near $1,259.60 per ounce, in the

middle of a 1,254.61 to $1,265.38 range. The earlier high was the highest since

June 15 when gold peaked at $1,266.69. The next level of resistance is

$1,280.77, the June 14 high.

     On June 6, the precious metal posted a high of $1,296.15, but then stalled,

creating a double-top with the $1,295.56 high seen April 17. 

     Subsequently, gold moved lower on unwinds as U.S. Treasury yields

recovered, with the precious metal bottoming July 10 near $1,204.90.

     Last week's move and close above the 200-day moving average, currently near

$1,230, and the 55-day moving average, around $1,249 suggested more upside for

gold.

     NYMEX August light sweet crude oil futures settled up $0.29 at $49.04 per

barrel, after trading in a range of $48.25 to $49.24. 

     The earlier West Texas Intermediate high was the highest crude level since

May 31, when prices peaked at $49.74. 

     Market players were watching to see if WTI can vault its 200-day moving

average, currently at $49.42, which would target the psychological $50 level. 

     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 soon slipped on extended

positioning, with WTI bottoming at $42.05 June 21, the lowest level since August

11, 2016, when crude bottomed at $41.10. The August 3, 2016 WTI low was $39.19. 

     Subsequently, market players gone long oil again on hopes of rebalancing

later in the year. 

     In stocks, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500

posted new life-time highs of 21,790.13 6,460.841 and 2,484.04 respectively

before succumbing to profit-taking, especially in tech stocks. Only the DJIA

managed to see a new life-time closing high, 21,796.55. 

     The S&P 500 closed down 0.10% at 2,475.42. At Thursday's close, the index

was up 10.6% year-to-date. 

     On the risk front, the CBOE's volatility index or VIX was closing around

10.31, in the middle of a 9.16 to 11.50 range. 

     Wednesday's low of 8.84 was a new life-time intraday VIX low. The prior

life-time intraday low was 8.89, seen Dec. 27, 1993. 

     The VIX posted a high of 16.30 on May 18 at the peak of risk aversion, not

far from the 16.28 high seen April 17 that was driven by North Korea concerns.

     It would take a close above the 200-day moving average, currently at 12.18,

to suggest risk appetite was waning. The VIX last closed above its 200-day

moving average in mid-May, but then only briefly.

     On the U.S. data front Friday, the market awaits advance Q2 GDP and ECI

data, with ECI especially eyed for signs of wage inflation. MNI's median

estimate is 0.6% for ECI. 

     --follow MNIEyeonFX on twitter.com --

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

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