PM Daily Market Commentary – 5/6/2019
Gold rose +2.26 [+0.18%] to 1286.04 on moderately heavy volume, while silver dropped -0.04 [-0.23%] to 14.91 on moderate volume. The buck was unchanged, crude rallied [+1.03%], so did bonds [10Y -3.1 bp], while SPX sold off [-0.45%].
The big, market-moving news over the weekend was a snag in the US-China trade negotiations. The US accused China of backtracking on commitments it made, and in response Trump announced (via tweet, of course) that he was preparing to levy 25% tariffs on a large swath of Chinese products. By Friday! Mnuchin said that the negotiations were 90% complete but that Chinese negotiators were trying to “go back on language that had been previously negotiated. [This was] very clear language, that had the potential of changing the deal dramatically,” he said. Lighthizer said, “We’re not breaking off talks at this point. But for now… come Friday there will be tariffs in place.”
Gold gapped up at the open, but then moved lower for the rest of the day. The long-legged doji was a bullish continuation, and forecaster moved higher into a mild uptrend. Gold remains in a downtrend in the weekly and monthly timeframes. Gold/Euros is in an uptrend in all 3 timeframes – and is approaching its downtrend line. A breakout above the downtrend line would be a very positive sign. Gold/USD is still far away from a breakout of its own.
COMEX GC open interest rose 4,555 contracts.
Futures are showing a 7% chance of a rate cut in June, a 40% chance of one rate-cut by December and an 15% chance of 2 rate cuts. Rate cut odds continue to rise.
Silver sold off in Asia, bottoming out just before the US market opened, and then rallied during US hours. Silver’s high wave candle was unrated, and forecaster jumped higher into a strong uptrend. Silver remains in an uptrend in all 3 timeframes. Not much changed in silver today. It remains looking reasonably bullish.
COMEX SI open interest rose 139 contracts.
The gold/silver ratio rose +0.38 to 86.20. That’s somewhat bearish.
The miners just moved sideways today; GDX rose +0.05% on light volume, while GDXJ climbed +0.28% on moderate volume. XAU fell -0.03%, the short white/spinning top was neutral, and forecaster moved lower, remaining in a strong downtrend.. XAU remains in a downtrend in the daily and weekly timeframes. The miners remain mired in a downtrend – no reversal yet for them.
The GDX:gold ratio fell -0.13%, while the GDXJ:GDX ratio rose +0.23%. That’s neutral.
Platinum rose +0.39%, palladium dropped -2.23%, while copper rallied +0.80%. Copper had initially gapped down hard at the open in Asia after the bad US-China trade news, but after an initial dip, copper rallied all day long, eventually closing higher than it opened. Copper’s closing white marubozu was quite strong (43% bullish) and forecaster jumped higher, flipping back into an uptrend. Copper appears to be saying that this weekend’s fuss doesn’t mean the talks are at an end – it is just another step in a sometimes-messy process.
The buck fell -0.01 [-0.01%] to 96.95. Trading range for the buck was relatively narrow; the short black/NR7 candle was unrated, and forecaster moved lower, remaining in a slight downtrend. The buck remains in an uptrend in both weekly and monthly timeframes. Really nothing happened in the buck today at all.
Crude rose +0.64 [+1.03%] to 62.61. As with copper, crude initially gapped down on the US-China trade news, sold off some more in the first few hours, then spent the rest of the day moving higher, eventually closing well into the green. The spinning top candle might be a reversal (42% bullish), and forecaster moved higher, but remains in a modest downtrend. Crude remains in a downtrend in both the daily and weekly timeframes.
SPX fell -13.17 [-0.45%] to 2932.47. As with crude, SPX gapped down hard at the open in the futures markets overnight, chopped sideways in Asia and London, then jumped higher at the open in New York, eventually rallying 40 points by end of day. The long white candle might be a reversal (38% bullish), and forecaster inched lower but remains in a mild uptrend. SPX remains in an uptrend in all 3 timeframes.
Sector map had materals (XLB:-1.43%) and industrials (XLI:-0.96%) leading lower, while sickcare (+0.51%) and energy (XLE:+0.09%) did best. Sector map reflects bearishness from sectors that would suffer from the failure of the US-China trade negotiations. Its also relatively bearish.
VIX jumped +2.57 to 15.44. The huge move higher in the VIX belies the strong rally in equities.
TLT moved up +0.27%, gapping up at the open, but then selling off as equities rallied. TLT remains in a mild uptrend. TY did much better, climbing +0.40%; the selling pressure didn’t seem to affect TY quite as much. TY’s candle print was a swing low (56% bullish), and forecaster moved strongly higher, flipping TY daily forecaster into an uptrend. TY is now in an uptrend in all 3 timeframes. The 10-year treasury yield fell -3.1 bp to 2.50%. The rally in bonds suggests a substantial amount of worry over the trade situation.
JNK gapped down at the open, but then moved higher as equities rallied, ending the day up +0.03%. JNK remains in a slight downtrend, but it isn’t signaling any sort of real concern.
CRB plunged -0.60%, making a new low – commodities continue their 3-week downtrend. 2 of 5 sectors fell, led by livestock (-1.87%). Both agriculture and livestock did poorly; that’s China-related for sure.
So what does it all mean? The SPX rally did look “unnaturally strong”, especially given the sharp move higher in the 10-year, and the strong rally in the VIX. Also, the timing of the SPX rally and the move in copper weren’t so well aligned. And certainly you could say that avoiding a big move down was in “the national interest”, since if equities don’t sell off, it puts Trump in a much better negotiating position w.r.t. China.
But ultimately it won’t matter. At end of week, if the news ends up being bad, the selling pressure will swamp any potential intervention. Otherwise last year’s December sell-off never would have happened. Intervention only works when the market hasn’t figured out where it really wants to go next.
And after all the fuss, Liu He is still flying to Washington with his team. I saw an interview on the matter – the interviewee suggested that Liu He was one of two groups in China – with Liu He more open to reform, while the other group more or less wanted nothing to change. And it was likely this other group that caused the backtracking. Interesting, if true; in China, things are not as monolithic as they appear from a distance.
Fun side note: Liu He attended middle school with Xi Jinping.
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PPT is on lunch break. They got this!
Central banks bought 145.5 tonnes of gold over the January-March period, 68% more than a year earlier. It followed purchases of 651.5 tonnes in 2018, the most since 1967.
“Given the strategic nature of central bank buying, we expect the momentum to continue,” the WGC’s head of market intelligence Alistair Hewitt said, adding that he expected central banks to buy 500-600 tonnes this year.
- This reply was modified 2 weeks, 5 days ago by phusg.
Well, if intervention was all-powerful, we wouldn’t have seen that drop in December.
My model continues to be: once the market figures out where it wants to go, intervention doesn’t work. An operating assumption is: the folks conducting the intervention do not have infinite money. If they did, and they were willing to use it, we’d never, ever see a decline.
Remember that decline last December? It was pretty brisk. It was so strong, it caused the Fed to reverse policy, which they didn’t really want to do.
If the Fed could control equities, they’d continue raising rates, use their magic “intervention power”, and all would be well.
Given that’s not what we are seeing, it stands to reason that intervention really isn’t all that powerful once the market determines which way it wants to go.