PM Daily Market Commentary - 8/28/2018

davefairtex
By davefairtex on Wed, Aug 29, 2018 - 5:00am

Gold fell -10.17 [-0.83%] to 1208.63 on moderately heavy volume while silver dropped -0.19 [-1.27%] on extremely heavy volume. The buck drifted lower, down -0.07%. For gold and silver to fall on a day when the buck also moves lower tells us that the metals are not doing very well. Palladium and platinum were down harder than gold, while copper rallied. It was a real mixed bag.

Ok, so yesterday I made a big thing out of the fact that Trump didn't deal with the low-wage situation in Mexico. So about that – turns out I was wrong. Trump DID address this; the US Trade Representative released a fact sheet on the US-Mexico trade agreement (here: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/august/modernizing-nafta-be-21st-century) which provides a thumbnail sketch of what was in the agreement. In the “Labor” section, there is a “labor value content rule” which says that at least 40% of auto content must be made by workers earning at least $16/hour. And 75% of the car must be made in North America to qualify for no-tariff treatment, up from 62.5% under NAFTA.

In other places, I saw the headline: “Car prices will rise” - which suggests that this labor rule will result in more income for workers, at least over time anyway. Mexican auto workers make $3/hour right now, so either their pay will have to rise, or more of the car will be made in the US where workers earn around $30/hour, or the car will not be tariff-free any longer.

Gold rallied in Asia, making a new high to 1220.70, but then gold dropped hard starting at 10 am, then continuing to fall throughout the rest of the day, eventually closing almost at the lows. The bearish engulfing candle was a 44% bearish reversal, and gold forecaster dropped -0.24 to +0.11. Gold remains above its 9 MA, and in an uptrend, at least for now. Weekly forecaster is still showing a buy signal, while the monthly remains in a downtrend.

COMEX GC open interest rose +4,461 contracts. Perhaps that was the reason for some of the selling pressure today.

Rate rise chances (September 2018) fell to 96%.

Silver tracked gold, making a new high to 14.95 at around 6 am, and then it sold off relatively hard, ending the day relatively near the lows. Silver's bearish engulfing was a 39% bearish reversal. f Since today was a contract roll off. Silver's short white candle was a bullish continuation, and silver forecaster jumped +0.15 to +0.16, which is a buy signal for silver. Silver remains in a downtrend in the weekly and monthly timeframes.

COMEX SI open interest fell -4,940 contracts. That's a substantial amount of short-covering; more than 2%, or about 8 days of global production. Perhaps it had something to do with the contract roll.

The gold/silver ratio rose +0.36 to 81.83. That's bearish.

Miners fell, with GDX off -1.87% on heavy volume, while GDXJ dropped -2.26% on very heavy volume. XAU dropped -1.95% and printed a bearish engulfing candle (31% bearish reversal) which didn't look all that horrible. Forecasters for the miners didn't look all that worried about today's move; GDX and GDXJ forecasters dropped a bit, but remain in an uptrend, and XAU actually rose +0.23 to +0.45. Forecaster seems to be saying this is just a sell-off in an uptrend. XAU remains above its 9 MA, which is a positive sign. I was a lot more concerned about today's move than the forecaster; it will be interesting to see where things go next.

The GDX:$GOLD ratio fell -1.04%, while the GDXJ:GDX ratio dropped -0.40%. That's bearish.

Platinum plunged -1.66%, palladium dropped -1.90%, while copper rallied +0.89%. I can't explain copper's rally – it seems out of alignment with everything else. While palladium's drop was larger percentage-wise, platinum's chart looks worse. Both remain in uptrends, at least for now anyways.

The buck fell -0.07 [-0.07%] to 94.31; it was a fairly uneventful day. The bullish doji star did look mildly bullish (36% reversal), and forecaster was unchanged at -0.38. The buck remains in a downtrend in daily and weekly timeframes, while it is in an uptrend on the monthly.

The TRY fell again, losing -1.69%. I still maintain that problem is not solved, and we know this because of the 10-year bond yield, which closed at 20.86%.

Crude fell -0.39 [-0.57%] to 68.24. Crude seemed to fall along with the metals, although the drop wasn't that significant, and the trading range was fairly narrow. The short black candle was a bullish continuation, and forecaster actually ticked up +0.12 to +0.19. Maybe crude is just taking a rest. The API report after market close was slightly bearish (crude: +38k, gasoline: +21k, distillates: +982k), which hit crude for just -0.13. After crude rallied $4 last week, today's retracement is fairly mild. Weekly and monthly remains in an uptrend.

SPX inched up +0.78 [+0.03%] to 2897.52; it was a new all time high, but just barely. The short black candle was a bullish continuation, and forecaster remains in a strong uptrend at +0.58. SPX is in an uptrend in all 3 timeframes. Sector map showed REITs doing very well (not sure what that's about, while homebuilders (XHB:-0.44%) doing worst. I'm not sure we can get much much from today's sector map.

VIX +0.34 to 12.50.

TLT was hit hard, dropping -0.60%, following through on yesterday's sell signal. TY also plunged, losing -0.22%. Today's drop pulled TY into a downtrend in both the daily and weekly timeframes. The 10-year yield rose +3.6 bp to 2.88%.

JNK was unchanged. It remains in an uptrend.

CRB fell -0.60%, with 4 of 5 sectors moving lower, led by livestock (-1.81%). 1%, with 3 of 5 sectors rising, led by livestock (+3.25%). CRB remains above its 9 MA, but below the 50 and 200.

With more details emerging from the US-Mexico trade deal, it looks as though Trump is still trying to keep his campaign promises to his base. Sorry for getting it wrong yesterday.  The agreement with Mexico puts more pressure on China. I think Trump has orchestrated this fairly well. First the EU, then Mexico. Then Canada is probably next. It doesn't look like a revolution anywhere, but they do appear to be solid, incremental changes.

While my code doesn't seem to be too worried about the rash of bearish engulfings in the metals, I'm a little bit more concerned. The Euro appears as though it might be topping out and/or the buck might be putting in a low here. During today's move, at one point the Euro was actually doing fairly well, but gold was selling off hard. This happened at 10 am, right after a consumer confidence report came out that was the strongest since October 2000.

We have Nonfarm Payrolls coming this Friday. Supposedly, the consumer confidence numbers can provide hints as to how good the payrolls numbers will be. Those particular tea leaves say it should be a strong report.

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2 Comments

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 43
Mexico

it looks as though Trump is still trying to keep his campaign promises to his base. Sorry for getting it wrong yesterday.

No worries, Wolf and pretty much all Wolfstreet commentators thought the same, so you're in good company!

Trump should've done a better job at communicating this. Usually politicians are only vague when they don't have concrete details or keep promises.

Did seem very strange to cave on Mexico with the Chinese situation ongoing.

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 599
Danielle DiMartino Booth podcast

Former Fed insider Danielle DiMartino Booth is sure the Fed is going to raise interest rates again at the September meeting. Why? DiMartino Booth explains, “I think he’s (Jerome Powell) the most independent Fed Chair in the past 30 years, and I think he’s going to raise rates regardless of what is happening in politics. . . . You don’t kowtow to political pressure when you need to do right by the economy. . . . Powell thinks the inflation numbers are under-reported. He’s listening to companies saying their profit margins are being squeezed . . . non-labor costs are outpacing labor costs by the greatest extent in three years, and what that tells you is inflation has run amok. . . . I think the Fed is going to continue to raise rates. . . . I think the markets have priced in the (September) rate hike by 90%. We may be looking forward to Jay Powell backing off come December. So, I am not really worried right now about a skyrocketing dollar.”

DiMartino Booth points out the biggest problem the world faces now is record global debt near $250 trillion “that few can conceive a workable solution.” Di Martino Booth says, “It really does keep me up at night because of the nature of debt. As we approach the 10 year anniversary of Lehman Brothers, the one takeaway that many have forgotten in the decade that has passed is that you don’t know where the true ticking time bomb is when there is an over-indebted problem. . . . When systemic risk is released, it cannot be contained by any higher authority and potentially be unleashed. The greatest peril of debt is we don’t know where the danger truly lies until something triggers it.”

Where could the next debt problem be? DiMartino Booth says, “There are trillions and trillions of dollars of leverage in this country that are not regulated by any entity and could cause problems in and of themselves. Can I rattle your memory with Angelo Mozilo and Countrywide? Again, a big company that was not regulated, and look at these problems, these subprime unregulated lenders caused way back when. If you want the parallel today, look at private equity and the trillions of dollars they control in our financial system where basically nobody is looking over them. The fox has taken over the hen house. That’s what keeps Jay Powell up at night, and that’s what keeps me up at night. . . . There is more leverage than in 2008. If you are gauging it on the fact that we used to have a $160 trillion to $170 trillion in global debt, and now we have $250 trillion in global debt, yes, things are worse. Things are definitely worse. ”

DiMartino Booth says the simple way to protect yourself is get out of debt. You can also do what the wealthy are doing. DiMartino Booth says, “I am no gold bug, but I can tell you gold is the ultimate hiding place. It is the ultimate place to hide when financial markets are disrupted because when financial markets are disrupted, all of them react in tandem. All of that hooey that you need to have a diversified portfolio, all of that falls apart with one exception, and that would be precious metals.”

https://usawatchdog.com/inflation-has-run-amok-danielle-dimartino-booth/

 

 

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