PM Daily Market Commentary - 6/13/2018

davefairtex
By davefairtex on Thu, Jun 14, 2018 - 3:47am

Gold rose +3.30 [+0.25%] to 1302.90 on moderate volume, while silver jumped +0.18 [+1.07%] to 17.07 on very heavy volume. The buck fell -0.05%, but that's only because DX futures closed prior to the fairly substantial moves that took place during Powell's press conference.

The FOMC meeting was the news of the day; Powell had a lot to say, and unpacking it all would take more time than I have. Bottom line: 4 more rate cuts until “neutral”, and there will now be a press conference after every meeting. This is not to suggest there will be a rate hike every meeting, mind you, its just a new thing – more transparency at the Fed. And of course this opens the door to a possible rate hike every meeting, if need be. Which is quite unlikely. But you never know.

Gold spiked down at 4:20 am in one of those high-volume spike events (4300 contracts traded in 1 minute), but the drop was rapidly bought. There was another move lower at 2pm on the FOMC announcement, but that was wiped out by Powell's press conference. I'm not sure what Powell said to cause the rally, but gold started moving higher shortly after he started talking. Forecaster rose +0.15 to -0.11; that's not quite enough for a buy signal just yet. Gold right now is just trading in a range.

COMEX GC open interest rose 6,942 contracts.

Rate rise chances (September 2018) are at 82%.

Silver rallied into the FOMC, sold off at 2 pm on the announcement, and then rallied strongly during the press conference, retaining most of its gains into the close. Silver made a new high today to 17.14. Forecaster moved up +0.12 to +0.58, which is a strengthening uptrend for silver.  Silver is looking much, much stronger than gold - it is well above all 3 moving averages.

COMEX SI open interest fell by -1,247 contracts today. Maybe that's some short covering, at long last.

The gold/silver ratio fell -0.62 to 76.35. That's bullish.

Miners were mixed today, with GDX down -0.04% on moderately light volume, while GDXJ rallied +0.46% on heavy volume. Miners actually sold off fairly hard at 2 pm, but the PM rally at 2:30 pulled the miners overall back to neutral. XAU forecaster fell -0.13 to +0.10. The miner uptrend continues to slow.

The GDXJ:GDX ratio moved up, but the GDX:$GOLD fell. That's neutral.

Platinum rose +0.46%, palladium fell -1.08%, and copper moved up +0.31%. That's a mixed day for the other metals; I'm not sure we can extract any meaning from today's moves.

The dollar fell -0.05 [-0.05%] to 93.38 . As mentioned, this is only because the DX futures contract closed at 2:30 pm, and most of the excitement happened immediately afterwards, during Powell's press conference. The moves after the close will be folded into tomorrow's price move.

Crude rose +0.57 [+0.86%] to 66.52 on heavy volume. Most of today's move came after a bullish-looking EIA report (crude; -4.1m, gasoline: -2.3m, distillates: -2.1m), which caused crude to shoot up about 50 cents immediately following the report. Forecaster liked what it saw too, rising +0.09 to +0.09, which is a buy signal for crude. Crude is now back above its 9 MA. Its hard to know if this is “the low”; it might be.

SPX plunged -11.22 [-0.40%] to 2775.63. While the candle print was neutral, forecaster was not happy with the plunge, dropping -0.40 to +0.07. SPX didn't like the FOMC announcement at 2pm, and it really was unhappy after the press conference was over, at 3 pm. Cyclicals did best (XLY:+0.15%), while materials led the market lower (XLB:-1.08%). Today's sector map was bearish.

VIX rose +0.60 to 12.94.

TLT fell -0.05%; TLT sold off following the FOMC announcement at 2pm, and didn't quite manage to rally back into the green by end of day. TY fell too, losing -0.10%, but TY printed a takuri line candle which had a 38% chance of marking the low. The 10-year treasury yield rose +0.2 bp to 2.98%.

JNK was unchanged; it sold off at 2pm, and didn't quite recover by the close. JNK remains in a strong uptrend – according to the forecaster. It doesn't look all that exciting on the chart, though.

CRB fell -0.03%; only 1 of 5 sectors fell: that was agriculture, which dropped -0.83%. CRB continues to chop more or less sideways.

What conclusion to draw from the FOMC announcements today? We are expecting 4 more rate increases before “neutral” is reached. The balance sheet unwind continues uninterrupted. Powell thinks that Trump's tax cuts will stimulate economic activity.  Silver liked all that, while gold liked it less, and the buck rallied also, at least to some degree anyway.

In Europe, the migrant situation is heating up.  Yesterday, French PM Macron accused the Italian government of "cynicism and irresponsibility" for refusing to let a ship packed with migrants (a.k.a. "migrant sea taxi") dock in Italy.  Italy immediately fired back, accusing the French of being hypocritical.  Italy has a point; 500,000 migrants have landed in Italy by "migrant sea taxi", because Italy is the closest destination.  France, not so much.

Di Maio shrugged off the French criticism. "I'm glad the French have discovered responsibility: if they want, we will help them," he said. "Let them open their ports and we will transfer a few of the people to France."

Italy summoned the French ambassador for "talks".

Something to consider: these migration issues are happening while the global economy is doing relatively well.  Just think what happens when the economy turns down.  Can the EU continue to retain its "everyone is welcome" refugee rules (a feel-good policy, for which Italy gets to bear the burden) during such a situation?

And if no changes are made - the EU will explode for sure.  Italy is demonstrating at this very moment that she will not put up with this situation any longer.

So far, markets aren't paying much attention.

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5368
ECB: 15B taper, but rates won't rise for 12 months

ECB met this morning and announced it would taper its money-printing operation to 15 billion euros/month starting in October, 2018, and then stop them entirely by end of year.

Balance sheet will be maintained "for an extended period of time", and rates will remain pegged at the zero bound through at least "summer of 2019".

The Euro immediately cratered, and is down -1.32%.  Buck is up +0.83%, as is - surprisingly - both gold (+5.80) and silver (+0.23). 

This tells us that gold in Euros has just screamed higher, and indeed, it is up +1.58%, or about 16 Euros, wiping out most of the post-Italy-relaxation plunge.

Pretty clearly the market expected the ECB to be a bit more snappy about raising rates.  What on earth will they do when the next recession hits?  Drop rates to -5%?  And this crushes pensions for another year.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1861
Hugh Hendry to Emerging Markets: It is time to panic

"I Would Recommend You Panic" - Peso

Pounded, Lira Lashed, & Rand Routed As

EM Crashes

 

My understanding of this very incomplete.

But I understand businesses in emerging markets often get loans in dollars, but do business in their own local currency. 

When the dollar soars relative to the local currency, it becomes very hard to pay the loans back.  Lots of businesses go bankrupt.

 

Anything else to add?

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