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PM Daily Market Commentary – 10/17/2019

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  • Fri, Oct 18, 2019 - 12:38am

    #1

    davefairtex

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    PM Daily Market Commentary – 10/17/2019

Gold moved up +1.59 [+0.11%] to 1499.97 on heavy volume, while silver climbed +0.15 [+0.86%] to 17.64 on moderately light volume. The buck plunged -0.40 [-0.41%], bonds were mostly unchanged [10Y yield +0.9 bp], SPX moved slightly higher [+0.28%], and crude rallied [+2.08%].

Gold mostly just chopped sideways today. The doji candle was not bearish, and forecaster moved higher into its uptrend. Gold remains in an uptrend in all 3 timeframes, although the current trends are quite weak. Today’s strong move down in the buck did not seem to help gold much at all. In fact, gold/Euros is in a downtrend in both daily and weekly timeframes.

COMEX GC open interest rose +9,995 contracts – about 5 days of global production in new paper.

Futures are projecting an 85% chance of a rate cut in October, an 88% chance of one rate cut in December, and a 20% chance of two rate cuts.

Silver’s rally today started after Asia closed, and continued through the afternoon in the US. The swing low candle was quite bullish (59%), but forecaster inched lower and remains in a slight downtrend. Silver remains in an uptrend in both weekly and monthly timeframes.

COMEX SI open interest rose +1,247 contracts.

The gold/silver ratio fell -0.64 to 85.03. That’s bullish.


Miners opened down, shot higher for the first half of the day, and retreated into the close. GDX moved up +1.39% on on moderate volume, and GDXJ climbed +2.02% on moderately heavy volume. XAU rallied +1.99%, the opening white marubozu was a bullish continuation (and a 3-candle swing low), and forecaster shot higher into an uptrend. The weekly hammer print (currently forming) is somewhat bullish too (42%). XAU is now in an uptrend in the daily and monthly timeframes. This could be a reversal for the mining shares – although we really need a close above the previous high to confirm.

Longer term – even during the recent PM correction, XAU never fell out of its monthly uptrend.

The GDX:gold ratio rose +1.28%, and the GDXJ:GDX ratio climbed +0.63%. That’s bullish.


Platinum rose +0.12%, palladium dropped -0.20%, and copper climbed +0.48%.

The buck fell -0.40 [-0.41%] to 97.17. The long black candle was a bearish continuation, and forecaster dropped deeper into what is now a reasonably strong downtrend. The buck remains in a downtrend in all 3 timeframes – and the downtrends are starting to get more severe.

Large currency moves include: GBP [+0.44%], EUR [+0.48%], CAD [-0.46%].

Today’s plunge in the buck appears directly related to more progress with Brexit. The UK and EU have now agreed to a deal; now the question is, will it pass Parliament? Given that the Northern Irish party DUP opposes the deal, passage is not assured.

And how different is it than May’s deal? Well, Nigel Farage calls it “lipstick on the pig”; he claims that the UK will be trapped “forever” having to use EU environmental laws, employment laws, and even taxation. He also claims that the UK will be unable to negotiate a trade agreement with the US until at least 2022. Farage hopes the agreement won’t pass Parliament, the UK will get yet another extension, followed by a UK general election where the electorate will get to weigh in. A recent poll suggested that it was 50-38 leave vs remain.

https://www.youtube.com/watch?v=LPIvbY1S_pU

One bit of good news; the new deal has no “Irish backstop” which could have left the UK in the EU customs zone literally forever.

Last point: CGP Grey called it perfectly with his 3:46 minute video.

https://www.youtube.com/watch?v=J1Yv24cM2os

Crude rallied +1.09 [+2.05%] to 54.17. The confirmed bullish NR7 was bullish (44%), and forecaster jumped back into an uptrend. Today’s rally also pulled weekly forecaster back into an uptrend as well, putting crude in an uptrend in both daily and weekly timeframes.  We might just have a low for crude.

The EIA report was quite bearish-looking (crude: +9.3m gasoline: -2.6m, distillates: -3.8m) but it was more positive than yesterday’s very bearish API report. Crude actually rallied about 30 minutes following the report release.

SPX rose +8.26 [+0.28%] to 2997.95. The short black/spinning top was a bullish continuation, and while forecaster fell, it remains in an uptrend. SPX remains in an uptrend in all 3 timeframes.

Sickcare did best (XLV:+0.74%) along with REITs (XLRE:+0.66), while tech (XLK:-0.20%) and financials (XLF:+0.07%) did worst. That’s a mostly-bearish sector map.

VIX rose +0.11 to 13.79.

TLT fell -0.24%, the doji candle was bullish (40%), but forecaster dropped deeper into its downtrend. TY fell also, losing -0.12%; the spinning top candle was a bearish continuation, and while forecaster moved higher it remains in a reasonably strong downtrend. TY is in an uptrend in both weekly and monthly timeframes. The 10-year yield rose +0.9 bp to 1.76%.

JNK rose +0.10%, the northern doji was a bullish continuation, and forecaster moved higher into what is now a strong uptrend. The JNK rally has been reasonably steady over the past 6 trading days, and today marked a new 3-week high for crappy debt. Still, a longer term new high is quite a ways off. The SPX chart looks substantially stronger than JNK. BAA.AAA differential remains at +92 bp. Credit concern remains modest at best.

CRB rose +0.32%, with 4 of 5 sectors rising, led by agriculture (+0.78%). Ag and livestock have both moved steadily higher since early September.

In addition to the Brexit news, we also had an Industrial Production report release today at 9:15 AM. It was recessionary: headline -0.4% m/m, manufacturing -0.5% m/m, business equipment -0.7% m/m. Auto production fell -4.2% due to the strike at GM. The business equipment reading is indicative of falling business expectations, which is something the Fed pays close attention to. Supposedly.

The markets were not affected by the INDPRO release.

On the one hand, today’s relatively feeble move in gold alongside a steep drop in the buck isn’t a great sign. To me it suggests that the European buyers are leaving. My guess: as a Brexit settlement approaches, sentiment towards both the UK and the EU are becoming more positive, and there is less perceived need for a safe haven from uncertainty. A wildcard: the large increase in OI today could bee what kept gold from moving higher as the buck fell.

On the other hand, we also saw a reasonably strong move higher in both the miners and silver. While both moves are positive signs, I think it is a bit soon to tell if this marks a real reversal. We also didn’t see a rally in platinum.

I suspect we need to wait for the Brexit fuss to die down before we will get clarity on where PM moves next.

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  • Fri, Oct 18, 2019 - 05:57am

    #2
    phusg

    phusg

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    Brexit

> A recent poll suggested that it was 50-38 exit vs leave.

Not sure where this came from but I think the reality is much less clear cut, see https://www.bbc.com/news/uk-politics-50043549

Considering some hard brexiteers are now backing this May-esque soft brexit ‘deal’ I suspect they may be coming round to see that a hard brexit is never going to get a majority (because it entails a hard border in Ireland) and that this is approaching the best they’re going to get.

I was also surprised by this in the Guardian, “The EU and the UK will aim for a zero-tariff deal with unlimited quotas.” Now that would sweeten the deal for the UK, or is the EU using this as as a sweetener to get this deal through parliament and then toughen up during the trade negotiations? There’s nothing as fluid as tariffs in this day and age and I just can’t see why the EU would give the UK with a free trade arrangement. Maybe the path to Irish unification, regulatory alignment and ECJ jurisdiction details are enough for them? Or would they expect an ongoing financial contribution for this access?

Still not sure on a position for this weekend…

  • Fri, Oct 18, 2019 - 09:48am   (Reply to #2)

    #3

    davefairtex

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    re: Brexit

phusg-

Well apart from my appalling typo (“leave vs exit”???) I think the poll answer really depends on how you phrase the question.  Remainers will come up with one answer, and Brexiteers will come up with another.

But I suspect – like many polls that run counter to “what the big money wants” (REMAIN!!!) – things below the surface are not as they would like them to be, not as the establishment media portrays them to be, what with all the constant thought-shaping that goes on.

Why else would “Labour” be so terrified of an election?  They know they’ll get crushed.  The weasel politicians all want to Remain (because their Donors want to Remain), but the actual voters want to Leave because they are tired of all that cheap labor from the continent depressing their wages.

Remain really is toast.  That’s my sense.  The stalling won’t work any longer.  One way or the other, Brexit will happen.  Momentum is all for Brexit at this point.  I agree the hard Brexiteers will probably go along with this one.  I am not sure how May-esque it is.  It really could be as you say.  But there’s no “infinite duration customs union” which seemed to be a bad idea if your goal was to actually exit.

As for the near term positioning…I’m cautiously leaning towards Parliament passing the current agreement.  All those Tories who were kicked out really want back in.  They know what will happen next election, which will either be a Johnson victory lap, or a “we really gotta execute Brexit” death march.

I think DUP may well get bribed in some way.  Some sort of bone thrown to them as part of the deal.

I’d say 65/35 Brexit passes parliament on Saturday.

Will that be sell-the-news?  GBP is up almost 10% off the lows.

If we look at gold’s correction as being (maybe) a duplicate of the march-april-may gold correction, we might have another month left perhaps?

  • This reply was modified 1 month ago by davefairtex davefairtex.
  • Sat, Oct 19, 2019 - 03:16am

    #4
    phusg

    phusg

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    re: Brexit

> The weasel politicians all want to Remain (because their Donors want to Remain), but the actual voters want to Leave because they are tired of all that cheap labor from the continent depressing their wages.

There’s plenty of anti-immigration sentiment behind Leave but I’m not sure the cheap labor aspect is the biggest.

Call me naive but reading this Guardian opinion piece (admittedly the guardian at its most socialist) made me realise some of Labour/Remainers may well want to remain for working class voters, basically as the EU labour regulations that are protective of workers rights would probably be slowly eroded away by UK conservatives after Brexit.

Most of Labours positioning on Brexit has been for party political gain though and ironically I think that is what is costing them in the polls.

  • Sat, Oct 19, 2019 - 03:52am   (Reply to #4)

    #5

    davefairtex

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    re: re: Brexit

All I hear from my friends – they say that the Poles and Eastern Europeans come with a great work ethic and a willingness to work for a fraction of what the locals get paid.

That sure sounds like my experience in the US and people from Mexico.  Mexican workers are industrious, and they are happy to work for 1/3 to 1/4 of what US citizens want to charge for roughly the same job.

When “Labour” is for “free movement of people”, that’s just wage debasement, plain and simple.  To think otherwise is to call into question actual real-world experience, common sense, the forces of supply and demand, and math.

So I’ll happily stack up my sense of how the world really works against this editorial from the Guardian.

Both Labour and the Tories were all in on wage debasement.  Kind of like the Republicans and the Democrats.  And all for the same reason: they are giving the Donors what they want.

And that’s why there was endless stalling on actual Brexit by the politicians.  And why lots of Labour voters were on board with Leave.

I mean, who knows what will really happen here with Brexit.  But the “common man” in the UK is not one of the “winners” in Remain.  That’s a wealthy man’s position.  Remain = cheap gardeners, nannies, and workers for your company.

My opinion, based on my understanding of how the world really works.

  • Sat, Oct 19, 2019 - 10:53am   (Reply to #4)

    #6
    phusg

    phusg

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    re: re: re: Brexit

I agree open borders tend to drive wages lower and that generally it is money that makes the world go around, but you seem to be saying that’s the whole story of how the world really works.

> But the “common man” in the UK is not one of the “winners” in Remain.

I’m not so sure. A raise the drawbridge mentality may work for the largest economy in the world, backed by the most powerful military in the world, but I’m not sure that logic works for the UK. The US has many goods and services the world wants, tariffs or not. Also, the US is much more self sufficient, with the UK having a huge trade deficit.

To still be competitive outside the EU, don’t you think the UK would have to erode their workers rights? Either that or/and become a tax haven. Of course maintaining competitiveness isn’t a must, taking a hit to the level of consumption is what is needed to keep global heating manageable, but that isn’t what the average Brexiteers is after of course.

  • Sat, Oct 19, 2019 - 11:10pm

    #7

    davefairtex

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    its complicated

Heh yeah, Brexit (and Brexiteers) is complicated.

Again, I go back to winners and losers.  Does the UK win or lose with Brexit?  I’d say in the main, the UK wins, but its complicated.

From observation: local government is almost always more responsive than a large, distant government, especially if local government is a democracy, and the distant government isn’t.  You say the EU has a “democracy deficit”, and I say “it uses the model of the Former Soviet Union.”  We agree, “more or less.”  So, the UK will have more democracy once they Leave – what with the UK being a democracy and local, and the EU being distant, and not being one at all.  And democracy is all about being responsive to the needs of the people, which I think we can all agree is a good thing.

Regarding groups of winners and losers:

Economic losers will be rich people, company owners, shareholders, bankers.  The wages they will have to pay to their workers will rise.  We can certainly debate this if you like – I suspect you will agree.

Economic winners will be the lower end worker, who will not have to compete with the Poles and other Eastern Europeans for jobs in their own country.  There will be more worker scarcity, and that will help pull their wages up.  This will help narrow the gap between rich and poor too – make it a more egalitarian society due to worker scarcity.  Same thing happened after the plague.  A bunch of workers were killed off, and wages went up as a result.  In fact, feudalism ended.  We might see the same thing here too.

Competitiveness is an interesting question.  The UK clearly won’t be a low-wage manufacturing nation any more.  But if the UK ends up making more of what they consume locally, that’s probably a good thing long term, especially in a world of less energy going forward.  More localized supply chains are probably positive things for the long term.  No doubt there will be short term costs.

Rules.  Are there “good” EU rules as well as bad ones?  Yes, definitely.  The EU as a group is able to stand up to US tech and US ag fairly well.  The UK people will lose those protections, and that’s probably not great for them.  This will probably be a lose for the UK overall.

So it’s complicated.  But Leave should ultimately result in an increase in democracy, and an increase to lower-end worker wages, and those two things are core issues.  Higher wages and worker scarcity means the lower end worker has a stronger voice in government again.  “Labour” might actually be a labor party again at some point.

Leave will hopefully redress the income inequality balance through supply and demand, rather than through legislation which – clearly – just hasn’t worked.  (And I give you one guess why)

Thanks again for the discussion.

  • Mon, Oct 21, 2019 - 03:56pm   (Reply to #4)

    #8
    Luke Moffat

    Luke Moffat

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    re: re: Brexit

Most of Labours positioning on Brexit has been for party political gain though and ironically I think that is what is costing them in the polls.

I’m not sure that is true, phusg. I think most of their positioning is due to the fact that 95% of Labour MPs voted to remain (218 / 229) and they can’t let go, compared with the Tory weighting of 55%. Looking at Labour from the outside, it seems like their leader is being held hostage by his MPs, most bizarre…

I suspect most of the working class will ‘defect’ to parties like Brexit Party, or (one might hope) the Social Democratic Party. I only know this from pub conversations and the little time I spend on social media so make of it what you will.

Stepping back for a minute, if you were window shopping for a system to run your state by would you choose either the European Union’s technocratic philosophy or the UK’s form of representative government? It is simply an embarrassment, furthermore it is simply obvious to everyone watching that the majority of MPs in the House of Commons have no interest in enacting the result of the referendum – the harm this is doing to a system of elective representatives may well prove to be irredeemable. I read somewhere;

“The people of Hong Kong are marching for democracy.

The people of the UK are marching for anti-democracy.”

In order to approach this from another angle I think a question worth asking everyone is, “Where does your body politic begin?” I think the two most obvious answers in this debate are European Union or UK Nation State. However, I’d argue it begins with the family on a foundation of trust and respect, that then extends into the community and so on. Perhaps that alters the nature of the question, “Who should set our values?” Parents, nation states or supranational entities? And what does that mean for the legitimacy of our current political systems?

I might try that line in my next discussion, explaining to people that civilisations go through configuration states based upon the type of energy they unlock doesn’t seem to advance the conversation. They just blame the Tories for the poverty now sweeping the land, as if Boris Johnson personally consumed all of our North Sea Oil and used the proceeds to murder innocent Arab children… (sorry, I’m still a little bitter about that).

Thanks for a respectful debate upon Brexit.

All the best,

Luke

 

 

 

 

 

  • Mon, Oct 21, 2019 - 08:26pm

    #9

    davefairtex

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    shopping for a system

Stepping back for a minute, if you were window shopping for a system to run your state by would you choose either the European Union’s technocratic philosophy or the UK’s form of representative government?

Yes.  This is what shocked me when I found out.   I whine about it constantly because – well because they tricked me.  The media tricked me.  This is a really big deal, and nobody ever brought it up as “something important” even though we’re supposed to be “the democratic West.”  I mean, this isn’t just a historical curiosity or a footnote.  It’s the fundamental governmental structure of 50% of “the West.”

And they picked it!  And it was just 30 years ago!!  It wasn’t some crazy artifact from a pre-historic time when nobody knew WTF they were doing and/or we had to do it to fight Russia!  It was a time of peace!  They knew!  And they did it deliberately.  And the media went right along with it and covered it up.

You call it “technocratic” – that word is way too kind, in my opinion.  Nobody knows what it really means.  “Techno” sounds like something you can depend on, comprised of clever non-political people who are just looking out for your best interests.  “Sure, I’ll take one of those.”  But the reality is: Leadership: not elected.  “Parliament”: cannot initiate or repeal = no real power.   Most recent historical example: the Former Soviet Union.  Which came to a sticky end in 1989.

But the form of government the Soviets gave us lives on, in Brussels.

It is simply an embarrassment, furthermore it is simply obvious to everyone watching that the majority of MPs in the House of Commons have no interest in enacting the result of the referendum – the harm this is doing to a system of elective representatives may well prove to be irredeemable.

I don’t think its irredeemable.  It is just a time bomb that has yet to go off.  Isn’t it interesting how the politicians want to avoid an election?  They pretend to want one, but put a gun to their heads – oops.  Not so much.  They know exactly what will happen to a whole lot of their class when the voters get to have a say.  That tells you that the power really does remain with the people, at least within the UK.

My question is this: how long will actual workers accept “political correctness” (which is the “moral force” that is used to underpin support for the Soviet/EU) in exchange for salary?  That’s how long the current “Labour” party will remain a force.

Brexit party should fix this.  Theoretically.

  • Tue, Oct 22, 2019 - 01:54am

    #10

    Eannao

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    EU System

Dave, I’m eager to learn more about your take on the EU political system. Can you direct me to previous discussion on this?

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