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PM Daily Market Commentary – 1/30/2019

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  • Thu, Jan 31, 2019 - 03:58am

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    davefairtex

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    PM Daily Market Commentary – 1/30/2019

Gold rose +8.40 [+0.64%] to 1325.10 on very heavy volume, while silver jumped +0.24 [+1.52%] to 16.08 on extremely heavy volume. The buck plunged -0.50%, while equities shot higher [+1.55%]. It was a risk on day, driven almost entirely by the FOMC announcement at 2pm.

What was in that announcement?

There were lots of things, but they boil down to two words: “patient”, and “cross-currents.” While Wolf Richter has chapter and verse (https://wolfstreet.com/2019/01/30/feds-qe-unwind-continues-on-autopilot-rate-hikes-on-hold-as-common-sense-risk-management-powell/), it sums to the Fed putting rate increases on hold (“being patient”) until the signals of an impending global slowdown coming from China, Europe, and a bad reaction from the markets (aggregated as “cross-currents”) ebbs enough so they feel more relaxed.

And Powell said in his press conference that he sees the cross-currents being “with us for a while.”

Meanwhile, the balance sheet reduction program (QT) will continue as scheduled, but the Fed is now reviewing just how small that balance sheet needs to be.  (Hint: not as small as they had previously estimated). 

Here’s my calculation.  The baseline would be: currency in circulation + required bank reserves. Currency (cash under the mattress) = 1.71 trillion, required bank reserve balances = 0.193 trillion. That’s 1.9 trillion, which would add up to another 2.1 trillion in roll-off. However, I suspect that number is vastly in excess of what they will come up with, because the markets would seize up if that happened.  And that ties in with…

The Fed has decided to stick with using IOER as the mechanism by which they will control rates in the future – rather than via the old-fashioned (i.e. what they did from 1913-2008) way they used to do things by increasing or decreasing liquidity. So what does this mean? What was just a “new, emergency policy” put in place after QE occurred in 2008 is now forever-policy at the Fed. Ok, so who are the winners and losers of this policy?

Well, let’s think about it. Can you deposit money at the Fed, and get 2.4%? No, you can’t. But your friendly bankster sure can. And for USD deposits, there is literally no safer place to put your cash. So you deposit your money at your casino-bank, who then drops most of your cash off at the Fed and collects 2.4%. Then the bankster turns around and gives you zippo.

That little free-money scam is now forever-policy at the Fed. Currently, bank reserves are: 1.78 trillion. So…how much free money does the Fed give the banksters every year because of this IOER policy? That’s good for $3 billion per month, or $36 billion per year. Free money. Who needs to lend and take risk when you can get free money from the Fed?

In my next life I’m coming back as a bank.

Bottom line: rate increases are on hold until those pesky cross-currents ebb, QT continues  but with an asterisk, and the bankster IOER cash cow is now the official long term policy of the Fed. Risk? Who needs it! “Not I”, said the bank…

Gold moved sideways leading up to FOMC, and shot up about $14 immediately after the 2pm announcement, making a new high to 1328.60 before fading a bit into the close. The long white candle was a bullish continuation, and forecaster remained in a strong uptrend. Today’s volume was a bit less than the last 3 days, but it was still quite heavy. Gold remains in an uptrend in all 3 timeframes. The very strong recent volume pattern appears almost like a buying panic – I’m guessing it has to do with the upcoming Fed meeting, and the recent hints that the Fed will adjust its balance sheet roll-off schedule. At some point the enthusiasm of the buyers will fade; gold’s RSI-7 is at 80, which is somewhat overbought.

COMEX GC open interest fell -10,303 contracts. That’s a big drop. Maybe more short-covering? I really want to see that COT report – several months of updates.

Futures are showing a 1% chance of an increase in March, and a split in December (6% increase, 14% decrease). That’s a big drop in December – much more dovish than yesterday.

Silver moved a bit higher leading up to FOMC, but then took off at 2 pm after the announcement, breaking out to a new high of 16.12 before fading, like gold, into the close. The long white candle was a bullish continuation, and forecaster dipped a bit but remains in a strong uptrend. Silver remains in an uptrend in all 3 timeframes. Today we got to see some very strong volume in silver – most likely a result of the breakout above the previous high.

COMEX SI open interest rose +4,829 contracts. That’s 10 days of global production in new paper. Looks like someone is shorting the breakout.

The gold/silver ratio fell -0.76 to 82.10. That’s quite bullish.

Miners jumped higher at 2 pm along with gold and silver, peaking out mid-way through the press conference, and then losing half of the gains into the close. GDX rose +0.96% on very heavy volume, while GDXJ climbed +1.03% on heavy volume. XAU climbed +1.37%; the long white candle was a bullish continuation, and forecaster jumped higher – it is in a very strong uptrend. XAU is now in an uptrend in all 3 timeframes. It looked to me as though the miners saw some selling pressure today after FOMC; it looks a little bit like a “sell the news” event, given how strongly they were bid up in the days prior to the meeting.

The GDX:$GOLD ratio rose +0.32%, while the GDXJ:GDX ratio moved up +0.08%. That’s mildly bullish.

Platinum rose +0.34%, palladium climbed +1.19%, while copper rose +1.95%. This was a very strong day for copper – what’s that about? That’s usually China-related. Any news? Looking around, I see that the US and China began a second round of trade talks today – USTR Lighthizer met with Chinese Vice Premier Liu He in Washington. Perhaps news has leaked out to traders about what Liu He is ready to offer the US. Its certainly possible. Those pesky insiders (and their friends) make money on this sort of information, while we are left waiting for the headlines. So – copper could be foretelling a breakthrough. Its at least possible, anyway. Put your trust in corruption, I always say. 🙂

https://www.scmp.com/news/china/diplomacy/article/2184388/us-china-trade-war-talks-begin-vp-liu-he-sitting-opposite-us

The buck plunged -0.48 [-0.50%] to 94.75. The buck tanked hard right at 2 pm, driven lower by the FOMC announcement. The buck made a new low, ending the day right at the 200 MA. The long black candle was a bearish continuation, and forecaster remained in a reasonably strong downtrend. The buck is in a downtrend in all 3 timeframes.

There were some minor currency moves today: EUR: +0.44%, GBP: +0.38%, JPY: +0.31%.

Crude rose +0.91 [+1.70%] to 54.44. Unlike most everything else, crude wasn’t driven by FOMC – instead, it was the EIA report at 10:30 am (crude: 0.9m, gasoline: -2.2m, distillates: -1.1m) that encouraged prices to move higher. Crude made a new high today, The long white candle was a bullish continuation, and forecaster moved sharply higher into uptrend. Crude’s volume on today’s new high was quite strong.  Crude is in an uptrend in all 3 timeframes.

SPX rose +41.05 [+1.55%] to 2681.05. About half of the gains came in the futures markets overnight (possibly helped by AAPL’s happy earnings report after yesterday’s close), and much of the rest came following the FOMC announcement at 2 pm. SPX made a new high, the long white candle was a bullish continuation, and forecaster moved a bit higher and is now in a medium-strength uptrend. SPX is in an uptrend in both the daily and weekly timeframes.

Tech led (XLK:+3.11% – AAPL!) along with discretionary (XLY:+1.97%), while staples (XLP:0.67%) and financials (XLF:+0.58%) did worst. That’s generally pretty bullish.

VIX fell -1.47 to 17.66..

TLT fell -0.07%, selling off fairly briskly at 2 pm but then bouncing back by the close. TLT appears to be moving slowly higher. TY rallied sharply at 2 pm – the 10-year really liked the FOMC announcement. That was good enough for a buy signal on the daily chart, which puts TY in an uptrend in both the daily and monthly timeframes. The 10-year yield fell -1.7 bp to 2.79%. I think TY’s uptrend will continue to define direction for bonds. If and when the Fed decides to stop rolling off its balance sheet, that takes a fairly large amount of supply off the market, which would be bullish for bonds. Plus, bad news is always good news for bondholders. Talk of “cross-currents” that are “here for a while” – thats music to the ears of the bond market.

JNK shot up +0.77%, breaking out to a new high. The move started at 2 pm, as with most everything else today. Can the 10-year and JNK both be right? I don’t think so.

CRB rose +0.52%, with 4 of 5 sectors rising, led by industrial metals (+1.21%). Those industrial metals have rallied steadily since the start of 2019, making a new high just today. That’s China, I think.

Powell was only medium-dovish today; certainly from a rate-hike perspective it was everything the doves might have wished for. Was this all due to Trump’s browbeating? Or was Trump simply right? Or did Powell’s rich friends ring him up and say, “hey stop with the increases, you’re making our portfolios drop way too fast.” I suspect there was a ton of pressure on him to ease up. He looked a bit nervous at the meeting, at least from what I could see.  And some reporters’ questions were actually reasonably good.  One more or less asked, “so 6 weeks ago it was ‘full speed ahead’ and now you’re pulling on the brakes?  WTF happened?”  Its nice to see fewer softballs these days.

Both gold and treasury bonds loved the announcement, as did silver. Even SPX found something to like – although half of that was probably due to a relief rally in AAPL.

Gold is semi-rapidly approaching the previous high of 1370 – it is “only” 45 points away. But this is really a critical level. I’ll tell you more about that this weekend, I’ll do an end of month report and I’ll include a quarterly gold chart which should help show why that 1370-1380 level is so critical as a signal.

Until then.

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