PM Daily Market Commentary – 10/1/2019
Gold rose +6.80 [+0.46%] to 1488.91 on very heavy volume, while silver jumped +0.24 [+1.40%] to 17.33 on moderately light volume. The buck fell [-0.25%], along with crude [-0.52%], SPX fell harder [-1.23%] while bonds moved higher [10Y -3.1 bp].
Market-moving economic news: the ISM manufacturing index was released at 10 am: headline 47.8 (prior 49.1), with new export orders 41.0, new orders 47.3, backlog orders 45.1. These were unpleasant numbers, especially the export orders, which projects a manufacturing contraction going forward. Headline is “the most recent month”, while orders are all about “next month.” Executive summary: bad today, worse next month.
Gold moved lower in Asia, bottomed out at 1465, recovered somewhat during the London session, and then jumped higher following the ISM report at 10 am. The spinning top candle was a bearish continuation, and forecaster moved higher but remains in a downtrend. In spite of the rally, no reversal for gold today. Gold remains in a downtrend in both daily and weekly timeframes. So does gold/Euros.
COMEX GC open interest dropped -19,123 contracts. That’s a large move; 9 days of global production in paper – more cash-register ringing by the commercials. That’s a positive sign.
Futures are projecting a 64% chance of a rate cut in October, a 79% chance of one rate cut in December, and a 28% chance of two rate cuts – that’s a massive increase in rate change projections in just one day. I’m guessing we can thank the ISM report for that change.
Silver looked stronger than gold; it fell slightly in Asia making a new low to 16.94, rallied during the London session, and then took another leg higher after the ISM report at 10 am. The long white candle was a bearish continuation, and forecaster moved higher but remains in a downtrend. Like gold, silver remains in a downtrend in both daily and weekly timeframes.
COMEX SI open interest fell -964 contracts.
The gold/silver ratio fell -0.81 to 85.92. That’s bullish.
Miners fell at the open, shot higher following the ISM report at 10 am, but then fell in the afternoon. GDX rose +0.79% on heavy volume, while GDXJ climbed +1.88% on moderately heavy volume. XAU rose just +0.16% – today was largely a failed rally in the miner index. The spinning top candle was a bearish continuation, and forecaster inched higher but remains in a strong downtrend. No reversal for the miners either. XAU remains in a downtrend in the daily and weekly timeframes.
The GDX:gold ratio rose +0.33%, and the GDXJ:GDX ratio climbed +1.08%. That’s somewhat bullish.
Platinum fell -0.66%, palladium dropped -1.11%, and copper moved down -0.29%. The moves in the other metals were not tied to the ISM report at all. Copper actually dropped hard in Asia & London, and rebounded about an hour after the ISM report was released. I think something else drove copper today.
The buck fell -0.25 [-0.25%] to 98.68. The drop in the buck was a direct result of that ISM report at 10 am. The dark cloud cover was somewhat bearish (36%) and forecaster moved lower but remains in a strong uptrend. The buck made a new 3-year high today, but the ISM report caused the reversal off that high. The buck remains in an uptrend in both daily and weekly timeframes. For some reason, the monthly has tipped over into a downtrend. I really need to look at that model; its always predicting downtrends that don’t materialize.
Large currency moves included: AUD [-0.72%]. The large drop in AUD had nothing to do with the ISM report; the plunge in AUD happened during the Asia & London sessions.
Crude moved down -0.28 [-0.52%] to 53.85. A fairly heavy plunge in crude began following the ISM report at 10 am, bottoming out at 53.05 before bouncing back. The high wave candle was a bearish continuation, and forecaster inched higher but remains in a strong downtrend. No reversal for crude yet either. Crude remains in a downtrend in all 3 timeframes. A bullish API report (crude: -5.9m, gasoline: +2.1m, distillates: +1.7m) at 4:30 pm helped oil recover somewhat from the ISM-driven selloff, but not enough to pull crude back into positive territory.
Longer term – an article by Nick Cunningham suggests that shale has topped out, “for real this time”, and he has a nifty chart which seems to bear this out. It seems as though there will be a struggle between peaking US shale (leading to a US production decline), and declining oil demand due to that global slowdown that the ISM’s declining “new export orders” seems to be hinting at.
SPX plunged -36.49 [-1.23%] to 2940.25. The closing black marubozu was bearish (44%) and forecaster fell a bit deeper into a downtrend. Both weekly and monthly forecasters remain in uptrends, but by slim margins. SPX may be about to enter a more significant correction. A bevy of underperforming money-losing IPOs, and the yanking of the WeWork IPO all suggest that the bloom may be off the rose for equities.
Industrials did worst (XLI:-2.40%) along with materials (XLB:-2.35%), while utilities (XLU:-0.23%) and staples (XP:-0.26%) did best. It looks like an industrials-led bearish move; mostly a bearish sector map.
VIX jumped +2.32 to 18.56.
TLT moved up +0.13%, the bullish belt hold was neutral, and forecaster inched lower but remains in an uptrend. It was a bit of a weak move given the strong correction in equities. TY rose +0.27%, the spinning top was a bullish continuation, and forecaster moved higher into its uptrend. The 10-year yield fell -3.1 bp to 1.64%. Just looking at the numbers, the response of the bond market to the bad ISM report seem fairly muted – that’s because bonds had sold off fairly heavily in the 30 minutes prior to the report. The rebound back into positive territory today was actually quite strong.
JNK plunged -0.68%, the closing black marubozu a bearish continuation, and forecaster dropped deeper into its downtrend. It was a large ugly move by JNK today, and it mostly wasn’t attributable to that ISM report. Perhaps something is up in the crappy credit markets – finally? They are definitely supporting the risk off thesis at this point. BAA.AAA differential moved down -1 bp to +87 bp. But that’s yesterday’s news; we will have to wait for tomorrow since this series is lagged by a day to see what effect the ISM report had on the differential.
CRB rose +0.08%, with 2 of 5 sectors rising, led by PM (+1.16%).
PM Johnson is sending his final BRExit offer to the EU on Wednesday, saying that if the EU chooses not to engage, then it will end up being a no-deal exit. Some of the hardline pro-brexit Tories have indicated they may be persuaded to back Johnson’s deal, and the DUP (an ally of the Tories from Northern Ireland) are also behind Johnson. Resolving the issue of the Irish border is key – as is the ability of Johnson to get the deal passed Parliament. In spite of the grumbling from the EU, my guess is that with a gun to their collective heads, the EU will suddenly become reasonable at the last minute.
Old Roman saying: “If you want peace, prepare for war.” Common sense: “Don’t put a Remainer in charge of BRExit.”
But the more proximate market-moving event today was another month of contraction in US manufacturing; what’s more, new orders are contracting, and new export orders are contracting very rapidly. While the market didn’t respond to hints of this yesterday, today’s ISM report brought an immediate sell-off in equities, a large jump in rate-cut projections, and a move higher in gold, silver, and bonds.
That said – we really need to be aware of the near term potential for good news coming from the Brexit negotiations. I think Johnson has a real chance of getting a deal done, and if no deal is done immediately, I predict that some kind of deal will be done very rapidly in a post “no-deal” Brexit – with Johnson holding almost all the cards, rather than just most of them. Either way, once Brexit occurs, the uncertainty will be gone, and that should help the EU bounce back at least somewhat from its current downward spiral. October 31 is still a month away, of course; there is a lot that can happen between now and then.
Longer term, a reasonably successful Brexit will also show the world that the EU isn’t a roach motel; countries can check in, and then check out again – one doesn’t need to be stuck forever, and nobody will end up dying as a result. This demonstration is probably what the folks in Brussels fear most; it is likely why they have worked so hard to stop a real Brexit from happening.
Consider for a moment: why is the EU moving heaven and earth to stop members from leaving if it is such a great club to belong to? Kind of makes you think.
Related: the very successful commercial from the late 70s, “Black Flag’s Roach Motel”:
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> This demonstration is probably what the folks in Brussels fear most; it is likely why they have worked so hard to stop a real Brexit from happening.
The British on the other hand have worked really hard to make a Brexit happen:
1) The British Parliament votes No to May’s Brexit deal more times than I can count.
2) No British public or parliamentary majority backed plan voor Brexit is developed in the 3 years since the referendum.
3) New PM Johnson, after years of time to prepare and months in office is now finally prepared to present his Brexit proposal.
…and the EU is the one working hard to stop Brexit from happening?!?
Of course they won’t give Britain a sweeter deal than any of their non-member trading partners. Barnier already very clearly presented the options 2 years ago (along with why most aren’t possible due to the UK’s own red lines):
It sounds like Johnson’s proposal involves border checks in Ireland i.e. putting up a ‘wall’ through the Island of Ireland, which reneges on the Good Friday agreement, the majority in Ireland don’t want and the EU don’t want either. Doesn’t sound like it will go anywhere and is designed to prepare the electorate for a hard Brexit. No doubt it will be framed as the EU’s fault that a wall is deemed necessary, just as the UK tried earlier in the negotiations, even though to believe that you have to ignore the fact that the UK was the one who surprisingly initiated the withdrawal from the EU. And it’s not as if they were bullied out of the club, not a single other EU country wanted the UK out of the EU.
Dave, I encourage you and anyone else who has been misled by Mish’s warped take on the Behind the scenes documentary to watch the whole thing, it’s now on youtube.
Mike “Mish” Shedlock’s ridicuous interpretation “The EU cannot hide its intent of trapping the the UK in a permanent customs union, with no say in policy.” again implies the EU were the ones who voted to eject the UK from the EU!
And this from Nigel Farage’s pal Mish and especially this, “The EU bragged about “getting rid of the UK on EU terms” and turning the UK into a “colony”” is either insidiously misleading or just culturally tone deaf to the sarcasm dripping from the joking of 2 junior aides. Here it is: https://www.youtube.com/watch?v=FvKGWQXi3rM&t=97m03s
I definitely agree that the UK is the one that wanted to exit the EU. That’s pretty clear. I’m not sure why you made this point but I’m in violent agreement.
My contention is, the EU doesn’t want the UK to leave – in fact, it doesn’t want anyone to leave, and it is actively seeking to punish the UK for departing, “to encourage all of the others.” That’s my assessment anyway. What kind of a club punishes people for leaving? Perhaps it is a club that is desperate to preserve the membership fees that keep that pension money flowing to the bureaucrats. After all, no EU, no pensions. And that would suck.
Given a BRExit, the EU would probably benefit from something more than a WTO agreement with the UK – Germany would find this particularly useful. Can this be sorted out? One would hope so. But given the EU’s desire to punish the UK for leaving, I’m not sure common sense will prevail. I mean, it will, eventually, but there may have to be German auto manufacturers pushed to the wall before that happens.
Lastly, I completely agree that the UK Parliament is stuffed with members who have been bought and paid for by business, and they have worked overtime to frustrate, impede, block any sort of real BRexit. That’s because Business loves “Freedom of Movement”, which is shorthand for “really cheap labor costs via wage debasement.” Business in the US likes Open Borders for exactly the same reason. That’s why most Republicans weren’t going to vote for “border security” (i.e. Trump’s Wall). Their donors want all that cheap labor from across the border. Same thing in the UK.
So yeah. Real BRExit has been a clusterf*ck as a result of all those donors weighing in. They’ve even completely co-opted the “Labour” party, many of whose voters want to Leave (yes! I’d like a higher salary, please), but “for some reason” their elected MOPs are voting Remain.
Hope that clears things up.
even if accomplishing that is an illegal action.
Katya Adler’s take:
But it is fundamentally misunderstanding the EU if the prime minister thinks at this stage the 26 EU leaders will turn round on the Irish prime minister and say: “Listen, you are going to have to accept this because we just want to have a deal.”
It is also fundamentally misunderstanding the German Chancellor Angela Merkel, her attachment to EU unity and the integrity of the single market.
And also it is misunderstanding that the EU sees this in a bigger picture. If suddenly now they were to back down to all of the prime minister’s demands how would that look to other trade partners across the globe.
So EU leaders will be very careful not to rubbish the prime minister’s ideas, to talk about them as a basis for an agreement, but if it is take it or leave it, they will be leaving at this point.
I’m not sure there’s any misunderstanding (Johnson couldn’t be that stupid surely?) but that this is all show, trying to build towards setting up a hard brexit. Maybe that’s why gold is on the rise today? As the majority of parliament want another extension and the EU is open to one, I’d say the odds are on that outcome, although personally at this stage I don’t see how that will help resolve anything, solet the hard brexiteers get what they want and then let’s see how much greener they find the grass outside of the EU.
Meh. I think even if there is a no-deal exit, the UK and the EU will very rapidly come to an agreement on the stuff that matters most to the big players on both sides post-exit, and they will end up with a withdrawal agreement ex post facto.
The question is, after a no-deal exit, will the UK end up paying the divorce payment. 50 billion euros is a big chunk of change.
We imagine that Merkel is just going to toss her auto manufacturers right under the bus in the name of “EU unity” and “the integrity of the single market.” Well, I see that as a very unlikely event.
This BBC analyst’s view of the world is – shall we say, fairly idealistic. If Merkel has to twist a few arms to get her interests protected, I suspect that’s what she’ll do. That’s why they put her in power in the first place. All in the name of “EU unity” of course.
After all, the EU torpedoed Greece in order to save the German and French banks. You don’t think Merkel will torpedo Ireland to save the German automakers?
Last point: I’m guessing the EU leaks like a sieve, and GCHQ (not to mention the NSA) has them bugged six ways from Sunday. If you are in a negotiation, it really helps to know what cards your adversary is holding. I’m betting Johnson is in a lot better position than the EU in this area.
Remember WW2 – Enigma was a ridiculously large advantage against the Germans. Same thing in the Pacific against the Japanese. I can just imagine 17 different leaders all trying to keep something a secret. It is much easier for a tight-knit group in London to do so, even if GCHQ didn’t own the EU’s systems, which I suspect, it does.
> If Merkel has to twist a few arms to get her interests protected, I suspect that’s what she’ll do.
I agree that realpolitik mostly wins the day and Merkel will be looking out for German economic interests first, although I could point to her ‘idealistic’ stance on taking on Syrian refugees as an example of when it/she doesn’t. Now this policy has back-fired on her because she couldn’t get her electorate fully on board, so yes even when politicians try they often have to yield to nationalistic populist wishes in the end.
> After all, the EU torpedoed Greece in order to save the German and French banks. You don’t think Merkel will torpedo Ireland to save the German automakers?
Yes there was an element of protecting German and French banks (for misplaced systemic risk protection in my view and so with the intention of benefiting Greece too) but I don’t agree with your framing of financial rescue packages that the Greeks agreed to as torpedoing Greece. They were and are free to leave the EU at any time they wish.
And no I don’t at all see as likely the chance of Merkel et al letting loose a torpedo at the peace in Ireland for the sake of a tariff percentage of what 15% on some 15% of their exports plus the long term dividend of keeping EU membership more attractive than any other deal. Good EU leaders should she the enlightened self-interest of cooperative thinking as well as competitive thinking.
> Last point: I’m guessing the EU leaks like a sieve, and GCHQ (not to mention the NSA) has them bugged six ways from Sunday.
I guess everyone is aware the USA’s spying on it’s allies since the leaks that exposed the bugging of Merkel’s phone by the NSA since before she even became chancellor, very classy ;-p
> If you are in a negotiation, it really helps to know what cards your adversary is holding. I’m betting Johnson is in a lot better position than the EU in this area.
Johnson knows more of the EU cards, but I don’t see how this makes his position any better as I’m not sure he holds any himself. Sure, if you are in a negotiation with an equally powerful partner what you say is the case. But Britain forgets that with the size of its economy on the EU stage, let alone the world stage it is anything but an equal partner at this negotiation table.
At this table the EU holds all the cards and is therefore advantaged by playing an open hand, as it further did with the release of the ‘Behind closed doors’ documentary, I think in the hope that the Brits will come to there senses sooner rather than later and get on with it and choose a realistic option that they are happy with.
I don’t see how anyone can be happy with putting up borders in Ireland and in the Irish sea, apart from just maybe a majority of English and Welsh voters.
edit: ps. I should be saying UK instead of Britain as the word Britain already excludes Northern Ireland. But then the term Brexit is wrong for the same reason, guess UKout just didn’t have the same ring to it.
- This reply was modified 2 weeks, 1 day ago by phusg.
Merkel’s “idealistic” stance on the migrant/refugee issue is more probably the desire for Capital in Germany to have a whole bunch of cheap Labor parachute into the country. Who are the winners and losers with all those migrants? Is Labor a winner? No way. Increase supply of w0rkers = lower wages for the citizens. So Merkel’s theoretical “idealism” is actually just wage debasement, a gift to Capital. As are all pro-migrant policies. At some level, it is all about cheap nannies and gardeners.
Same is true of Brexit. Winners in Brexit will be UK labor (but not UK Labour Party – which might as well be called UK Big Business Party at this point). Losers will be Capital. Cheap workers from the continent will go away.
I remember you telling me before about how you thought it was completely reasonable for the EU to punish anyone trying to Leave. (Did I mis-remember what you said?) Have you changed your view on that?
If you think Great Powers snooping on each other is “not classy”…uh…hmm. I really don’t know how to respond.
The issue of the Irish border is an important one. Let’s hope both sides can get creative and sort it out.
As for the EU holding all the cards…I suspect you know this to be untrue, you’re too smart to believe otherwise. The UK has at least 50 billion Euros in “divorce payment cards” they can play. Add to that the auto import trade imbalance with Germany…fortunately you and I don’t have to fight about it. We will see how it plays out in 30 days. If Johnson crumbles and agrees to go with May’s original withdrawal agreement, then you will be proven right.
Johnson knows where the real EU red lines are courtesy of GCHQ. You may imagine the EU is being above-board in negotiations, but that’s also fantasy. I mean, who does that?
EU said earlier how the withdrawal agreement was non-negotiable and here they are – open to negotiations. A reasonable position – but definitely not “above board.” Somehow Johnson knew it wasn’t true.
As for poor Greece – they were hosed by their supposed EU “partners”, economically sacrificed on the altar on behalf of the German and French banks. You are right, they could have left, and they should have. But the people in Greece were too afraid, so their politicians let the whole country get mugged by the EU banksters for the next 30 years.
Of course, we do that in the US too.
At least by remaining in the EU, the deliberately impoverished country’s best and most mobile workers can flee their homes for other parts of the EU. So the winners & losers calculus in Greece is different than in the UK. Perhaps that too was by design. Capital in Germany and France can benefit from the well-educated Greek workers fleeing poverty of their home country. And there are suddenly a lot of cheap properties in impoverished Greece to be purchased by Capital, too.
Only those who can’t flee end up the losers.
Isn’t it great to be an EU member nation? Your best workers flee, your properties are sold at a big discount to the same gang that deliberately threw you into depression, and your pensioners get to eat dog food.
- This reply was modified 2 weeks, 1 day ago by davefairtex.
> I remember you telling me before about how you thought it was completely reasonable for the EU to punish anyone trying to Leave. (Did I mis-remember what you said?) Have you changed your view on that?
No, I still think it completely unreasonable to expect the EU to make exiting the EU more attractive than staying in. You, and many Brits with you, see that as punishing the UK, I suspect because the EU is considered a purely evil entity.
> As for the EU holding all the cards…I suspect you know this to be untrue, you’re too smart to believe otherwise. The UK has at least 50 billion Euros in “divorce payment cards” they can play.
I’m not sure that’s a playable card as the previous PM has already said, “of course we’ll be paying the money we committed to paying”. Withholding it may well be more damaging to the image and trustworthiness of the UK than the amount withheld.
> Add to that the auto import trade imbalance with Germany.
Again not sure, this is also for the trade negotiations that haven’t even started yet. Yes then it is a card, but the UK also has exports to Germany/EU so that will be a different game. Still an asymmetric one though as the majority of the UK’s export market is in the EU, which cannot be said for the EU members.
> Johnson knows where the real EU red lines are courtesy of GCHQ. You may imagine the EU is being above-board in negotiations, but that’s also fantasy. I mean, who does that?
Generally no-one, but I honestly don’t think the EU has softer red lines than they’ve publicly stated. How would that help their cause in this unique case? As you pointed out it’s pretty much impossible to keep secrets between all the member nations anyway, so maybe they used your argument to agree to play this ‘negotiation’ open handed.
> EU said earlier how the withdrawal agreement was non-negotiable and here they are – open to negotiations. A reasonable position – but definitely not “above board.” Somehow Johnson knew it wasn’t true.
This is based on really sloppy reporting and/or misunderstanding. The EU has to me always been quite clear they were always open to an alternative proposal from the (new) UK (government). When they said the withdrawal agreement was non-negotiable they meant Johnson shouldn’t bother coming back with cherry picked improvements to the deal that was agreed. So open to any alternative that was coherent and realistic. After a very long wait eventually Johnson has come up with something that may be close, although I don’t see how Varadkar will agree and I don’t see how Merkel would (want to) twist his arm to risk peace in Ireland.
> As for poor Greece – they were hosed by their supposed EU “partners”, economically sacrificed on the altar on behalf of the German and French banks. You are right, they could have left, and they should have. But the people in Greece were too afraid, so their politicians let the whole country get mugged by the EU banksters for the next 30 years.
This is exactly why I dislike the tabloidesque framing of the EU as torpedoing or mugging Greece, as the metaphor pushes out the fact they absolutely had a democratic choice and agreed to every package/proposal that was subsequently implemented.
First of all I want to thank you for playing along so nicely. 🙂 Ideas don’t get tested unless they are opposed, and you do a good job of testing mine.
Let’s start with Greece. The policies and prescriptions that the EU constructed for Greece ensures 30 years of depression. An economy can’t run a budget surplus for that long and recover. This is why most civilized nations have a bankruptcy process for their citizens. Such a policy grants forgiveness and the possibility of redemption versus a lifetime of punishment.
You are entirely correct of course – the Greeks consented to being thrown in debtors prison. The question I have is this, though: if the EU is a community designed to lift and support the nations who are members, and it prides itself on being one of those “modern” countries with debt forgiveness instead of debtors prison, why on earth would they deliberately select a policy that ends up placing one of the member nations into a 30 year depression?
I mean, there were lots of options with Greece. Why select this one, especially once you know what effects it will have?
And there’s history too.
In 1918, Germany “agreed” to Reparations that the Allies “proposed”. That policy didn’t turn out so well.
In 1945, the Allies granted Germany forgiveness and redemption instead of Reparations. This policy seemed to lead to a better outcome.
I find it curious that Germany made the “reparations” choice with Greece, rather than the forgiveness choice when it was in their power to grant, having been through both experiences themselves.
Why did the EU (slash Germany) feel free to choose Reparations? Try this on for size.
If the US Federal Government imposed punishment this severe on a US state, the representatives of that state could (and probably would) cause problems in Congress. With power in Congress closely divided, the representatives of that state deciding to break one way or the other could really affect the balance of power. So the Federal government doesn’t dare treat a state that badly. The blowback would be immense, and probably immediate. A legislative body (the US Congress) with real power provides this “check” on bad acts by the central government. Likewise, election of a chief executive provides a similar feedback mechanism.
That same feedback mechanism isn’t present in the EU, and as a result, the gang in Brussels can get away with some really bad acts and suffer no consequences as a result. They can impose horrific punishment on a member nation, and that member nation has no recourse except to leave.
From bad structures come bad policies because there is no “check” by the member states on actions taken by the central government.
Even with no check, the selection of the “Reparations” option just seems predatory to me. You really think 30 years in debtor’s prison is the right answer for your brother nation?