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PM Daily Market Commentary – 10/31/2019

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  • Fri, Nov 01, 2019 - 01:14am

    #1

    davefairtex

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    PM Daily Market Commentary – 10/31/2019

Gold jumped +16.75 [+1.11%] to 1520.61 on very heavy volume, while silver climbed +0.25 [+1.39%] to 18.21 on moderately heavy volume. The buck fell [-0.30%] along with crude [-1.40%] and SPX [-0.30%], while bonds rallied strongly [10Y yield -10.7 bp]. Copper fell too [-1.51%], which tells us that today’s moves may well be because the soybeans-and-pork trade deal is unraveling.

Sec State Pompeo just recently noticed that China is run by a Communist party. He made this point in a speech yesterday. While he did differentiate between the people of China, and the ruling party, the warning he gave was unmistakable: “It is no longer realistic to ignore the fundamental differences between our two systems, and the impact that … the differences in those systems have on American national security.”

https://www.reuters.com/article/us-usa-china-pompeo/pompeo-says-us-must-confront-chinas-communist-party-idUSKBN1XA05G

My guess: a wider trade deal is not going to happen. Now the question is, will the soybeans-and-pork deal occur? Certainly China needs the products. How much “national security worry” can China buy off with a big ag purchase? Enough to satisfy them?

It was definitely a risk off day.

Gold rallied all day long today. The swing low/closing white marubozu was bullish (42%) and forecaster jumped into a reasonably strong uptrend. Gold made a new 3-week closing high today, which is a positive sign, as is the close above the 50 MA. Gold is back in an uptrend in all 3 timeframes, as is gold/Euros.

COMEX GC open interest rose +34,545 contracts. Holy crap, that’s a huge increase; 75% of a Brexit, or 16 days of global gold production in new paper. What would gold have done without this rain of paper at COMEX? $30? More? The deluge of paper suggests to me that there is a great deal of concern “behind the curtain” about something. We see these large COMEX paper drops whenever “big things” take place, so although it is risking a “propter hoc” fallacy charge, today’s massive increase in OI strongly suggests to me that something big happened today.

Futures are projecting a 20% chance of a rate cut in December.

Silver moved steadily higher for most of the day as well; the long white candle was a bullish continuation, and forecaster jumped into a moderately strong uptrend. Silver made a new 5-week closing high today, which is a positive sign, as is the convincing close above the 50 MA. This puts silver back in an uptrend in all 3 timeframes.

COMEX SI open interest rose +2,608 contracts. That’s just 5 days of global production in new paper; it really pales by comparison to what happened in gold.

The gold/silver ratio fell -0.23 to 83.50. Thats somewhat bullish.


Miners gapped up at the open, fell back after the first hour, but then prices rallied strongly into the close. GDX rose +2.55% on very heavy volume, while GDXJ climbed +2.56% on very heavy volume also. XAU moved up +2.53%, the long white candle was a bullish continuation, and forecaster moved higher into what is now a strong uptrend. XAU made a new 5-week closing high as well. XAU remains in an uptrend in all 3 timeframes.  Miners are leading PM higher, it seems.

The GDX:gold ratio rose +1.42% and the GDXJ:GDX ratio edged up +0.01%. That’s quite bullish.


Platinum rose +0.77%, palladium fell -0.66%, while copper plunged -1.51%. Copper’s drop looks really ugly – the 3-candle swing high looks quite bearish, and forecaster has plunged back into a downtrend. Just when I thought we might see an industrial-metals led commodity rally…this happens.

The buck plunged -0.29 [-0.30%] to 96.93. The spinning top candle was a bearish continuation, and forecaster dropped into a downtrend. The buck is now in a downtrend in all 3 timeframes. New lows for the buck could be ahead.

Large currency moves include: JPY [+0.72%], GBP [+0.34%].

Crude fell -0.77 [-1.40%] to 54.19. Crude rallied in Asia, and then sold off hard through about 10:30 am. The long black candle was a bearish continuation, and while forecaster inched higher, it remains in a downtrend. Today’s move was enough to pull weekly forecaster into a downtrend as well; crude is now in a downtrend in both daily and weekly timeframes, and the monthly is looking extremely iffy also.

SPX fell -9.21 [-0.30%] to 3037.56. The spinning top candle was a bullish continuation, and while forecaster inched lower, it remains in a moderately strong uptrend. SPX remains in an uptrend in all 3 timeframes.

Materials did worst (XLB:-1.12%) along with industrials (XLI:-1.07%), while utilities (XLU:+0.55%) and communication services (XLC:+0.30%) did best. This was a “bad news about China trade deal” sector map.

VIX rose +0.89 to 13.22. Might this be the low for VIX? Could be.

TLT jumped up another +1.35% today, following on after yesterday’s big rally. The opening white marubozu was a bullish continuation, and forecaster moved higher into what is now a very strong uptrend. The 30-year plunged -9 bp to 2.17%. TY had a good day also, rising +0.49%, the long white candle was a bullish continuation, and forecaster jumped into a reasonably strong uptrend. Today’s rally also yanked both weekly and monthly forecasters back into an uptrend too. The 10-year yield fell -10.7 bp to 1.69%. Money appears to be racing back into bonds – both short and long term.

JNK plunged -0.34%, the closing black marubozu was a bearish continuation, and forecaster fell into what is now a strong downtrend. JNK is now strongly signaling risk off. BAA.AAA differential fell -4 bp to +92 bp. That’s curious; looks like money is rushing into low quality debt too – although it is selling the really crappy stuff. Credit concern remains modest.

CRB fell -0.80%, with 4 of 5 sectors falling, led by energy (-1.51%).

Today’s picture is one of concern about the pork-and-soybeans trade deal; the equity sector map says this, so does falling copper and crude prices. The worry has driven gold, silver, and the miners higher, and in the case of the miners, to break out to new multi-month highs.

So is this just another round of drama which will eventually end up with a deal? The Pompeo speech is something new. No way Pompeo gives this speech without Trump’s approval. What’s more, there seems to be a certain bipartisan level of concern being floated; if it isn’t wholly genuine right now, it may well become more so over time.

It feels to me as though we have crossed some sort of invisible Rubicon in the past few months. I do not think Pompeo’s speech was a trade negotiation tactic. Trump was probably China’s best hope to get some sort of deal done – after China backed out in May, now it seems as though the US national security apparatus (represented by Pompeo) is starting to get a more sympathetic reception within the administration.

China may try and play the “erratic Trump” domestic political angle (and they seem to be doing exactly this), but this could backfire badly, and give the US national security apparatus exactly the opening they have almost certainly been waiting for.

All of this is quite gold-positive. The huge jump in gold’s OI – no doubt an attempt to stop a “massive gold rally” headline – appears to support this view.

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  • Fri, Nov 01, 2019 - 08:24am

    #2
    MGRS

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    Pompeo speech and China

Dave,

Could you expand some more on your China/Pompeo speech/national security establishment hypothesis?  Or provide some links/reading material?  This is the first I’ve read of it, and I did some searching around on Zerohedge and the like… but as often happens, you’re connecting dots in a way that I can tell is coherent but I don’t have the background to see yet.  I have my theories on what’s going on with internal US politics, China trade, and grand strategy, but I’m probably a step or two behind and my theories are based mostly on gut feeling and trends.

Maybe in a future update, or whenever convenient, I’d love to see this unpacked more.

  • Fri, Nov 01, 2019 - 04:00pm

    #3

    lambertad

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    Up to speed

Watch these, that will get you up to speed.

  • Fri, Nov 01, 2019 - 06:57pm

    #4
    MGRS

    MGRS

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    Pompeo, China, and the swamp

Thanks Lambertad – I follow Kyle Bass reasonably closely, at least closely enough that I watch whatever happens to cross my feed.  Those three videos were really good.

I’m particularly interested in how US politics may be shifting regarding China – which I think is what Dave is alluding to with the Pompeo speech.  Trump’s China policy, likely heavily influenced by Bannon, seems like there’s finally a real acknowledgement among policy makers that China is still run by Communists, and not the “good” kind that we’d been deluding ourselves into believing in.

I’ve theorized that the net effect of the Russiagate hooey (whether deliberate or just an unhappy coincidence) was to distract us from the real threat to the west – Chinese Communism – in favor of keeping the money flowing into the pockets of western elites at the expense of western society.

So I guess my real question – what has changed in Washington that we’ve gone from talking trade policy to Pompeo’s bellicose rhetoric?  I consider Pompeo a quintessential swamp creature, so could this also be a sign that the intel agencies will get on board too?  Maybe even coalesce behind the President and rout out their own factions that have sought to undermine him?  That we could have a rational, unified response to 21st century Chinese Communism?

Not sure if that would make me happy or terrified.

  • Sat, Nov 02, 2019 - 06:27am   (Reply to #4)

    #5

    lambertad

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    re: Pompeo, China, and the swamp

I think we’re on the same page. It’s impossible to know “what changed”, but clearly there has been an overt change of tone in the media, congress, and from the SOS. As you said, Bannon has Trump’s ear, but I agree that the Deep State (https://www.rt.com/usa/472398-deep-state-ex-cia-boss/ which now OFFICIALLY exists as we all knew it did, but you know, was just a “conspiracy theory” 2-3 years ago) has now turned their focus on China, for whatever reason. I think it’s been a long road coming. Maybe DNI, NSA, CIA has finally had enough of our DOD intel being hacked by China. Maybe they’ve discovered some spy ring from China that is stealing our secrets that they just haven’t led on about it in the media. Whatever the impetus, things have changed, and it appears the pace of change in accelerating. 2020 should be an interesting year.

  • Sat, Nov 02, 2019 - 07:23am

    #6
    MGRS

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    US elections: Russia vs China

Just kind of spitballing, but one possibility for 2020’s elections: that we could see the election as a foreign policy referendum on China vs Russia.

In the one corner, we’ve got Trump and whoever has allied with him against Chinese communism, who are trying to pivot American foreign policy and and minimize/contain/find detente with Russia.  This side gets accused of taking money/favors/meddling from Russia with varying degrees of truth behind the allegations.

On the other side, we’ve got the “Resistance” – continuing their their Russiagate allegations, minimizing the Chinese threat, and generally arguing for not rocking the boat and getting back to the good old days when the Chinese shipped us cheap goods and cheap fentanyl and we sent them debt, trash barges, jobs, and our best intellectual property.  Party-appeasing practices by American corporations and politicians continue to get exposed as an electoral weapon.

Some of the big factions in this – where do the intel agencies, the military industry, corporate media, silicon valley, and big business align themselves?  How is the information flow censored or manipulated by the various players?  And how do Russia and China modify their policies to influence the outcome, through actual meddling or more subtle/corrupt means?

And then, do we coalesce around a rational policy after the election?  After all, Oceania had always been at war with Eastasia.

Interesting times.

  • Sat, Nov 02, 2019 - 10:02am

    #7

    davefairtex

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    forces in play

Here are all the forces I see in play:

Like you say, there are the people-getting-rich off Chinese money.  Globalized US companies get to make stuff for cheap in China, and sell it to US consumers at a very nice margin, which helps shareholders and their stock options.  Taken all together, they make for a powerful lobby.  I’m sure you remember initially when Trump started his trade thing, there was an uproar about how “everyone knows tariffs are a terrible idea.”  That was them complaining via their proxies.

They all contributed to campaigns too.  Of course.  So we get Biden: “hey, man, China isn’t a problem.”

And there is the US military – long term strategy planners – thinking that sending all our technology manufacturing overseas to our biggest potential adversary, when we are going to be facing a world of less energy, is probably a bad idea.  So, that group was in favor of Trump’s approach.  They quietly supported him.  [Who was Trump’s first Chief of Staff?  A General.  And Flynn…what were his thoughts on China?  Might be interesting to find out.  He was a very early casualty.  FBI took him out.  On whose orders?  Interesting, yes?]

And recently, something inside China changed too.  Xi is preparing the place for a “long march” of some sort.  This could just be about trade – or it could be that Xi is sensing the shift in the US, that the long term strategy planners here have managed to finally turn the supertanker into a new direction.  Or maybe Xi himself has been preparing something serious for his country for quite a while too.  Perhaps he too is also preparing his nation for a “world of less.”

https://www.scmp.com/economy/china-economy/article/3011186/xi-jinping-calls-new-long-march-dramatic-sign-china-preparing

And certainly “something new” is now visible on the ground in China.  Things have materially changed.  Evidence: this US video blogger – lived in China for 10 years, saw how things changed, and finally had to leave, wife in tow.

https://www.youtube.com/watch?v=rgAQ7UpF43o

And, possibly, part of Xi’s campaign led to the extradition law for Hong Kong.  Which led directly to the protests.  “If we don’t protest now, we will never be able to.”

Also, Xinjiang could be seen in much the same light.  A problematic province, with lots of resources, that needed to be calmed down.

Also, the “sinicization” campaign.  Apparent goal: make the culture homogenous, so there are no forces that might divide the people.  This goes to pretty much anything – symbols in churches, foreign script on restaurants, literally everything.

https://en.wikipedia.org/wiki/Sinicization

Also, the social credit system.  This is a massive, automatically constructed “usual suspects” list.  Self-reinforcing.

Also, the worldwide campaign to forcibly rebrand Taiwan.  In weaker, neighboring countries, Taiwan must now be called “Taiwan, Province of China.”  First China gets everyone to change the name, and then presumably when they invade, everyone says, “well sure, they’re just a Province of China, right?” and write it off as an internal matter.

Friend of mine told me a story: a certain Airline refused to change its maps for Taiwan; China demanded they label it as “Taiwan, Province of China.”  One day, with no warning, when one of their planes was about to land in Shanghai, the airport refused permission for the plane to land.  Oops.  Plane, and 300 pax had to reroute to…somewhere else.  The airline dutifully changed its maps.

So, decoupling.  I think the US military is starting to win the struggle within the national security state.  It doesn’t hurt when China grossly overplays its hand and tries to get an NBA coach fired (in Houston!) in response to tweeting support of Hong Kong.  They have since backed down.

Last point, a reflection of the new sense of things – a reaction to Xi’s recent changes?  There is a new group in the US, called the Committee on the Present Danger.  It is actually an old group, with a new mission.  This is incarnation #4.  Some of the previous incarnations were pretty enthusiastic; history buffs may remember Paul Nitze and NSC-68, a document which drove US cold war planning for decades.  https://en.wikipedia.org/wiki/NSC_68

Incarnation #4 is directed at the threat from China, founded March 25, 2019.  Do they have a foundational document similar to NSC 68?  Wouldn’t that make for interesting bedtime reading?

It is worth asking, how much are they overhyping the threat, vs how much is an actual concern?  And what do they advocate as a response?

https://en.wikipedia.org/wiki/Committee_on_the_Present_Danger

Simply pointing out that China is run by the CCP, which is a top-down no-dissent-tolerated bunch, is worth doing, I think.  But an NSC-68 level response?  I sure hope not.  We can’t afford it.

But the MI complex might just be rubbing their hands and chortling with glee at the thought of all the new weapon systems purchases…

Its a complicated picture.

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