PM Daily Market Commentary – 6/14/2017

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    PM Daily Market Commentary – 6/14/2017


Gold fell -6.00 to 1262.50 on extremely heavy volume, while silver rose +0.06 to 16.88 on very heavy volume. A weak retail sales report at 830 am first caused gold to spike higher, but then the FOMC announcement came along at 2pm and gold was hammered down to a new low at 1259. Silver largely followed gold.

The retail sales report showed an outright contraction of retail spending in May; it wasn’t a disaster, but since retail sales is a coincident economic indicator (i.e. it tips over right as recessions start), and since its an absolute dollar amount rather than an index or something deflated by the CPI, actual contraction is a bad sign. At minimum, it should rise with inflation just to stay even (said the Red Queen). Anyhow, the -0.3% drop in retail sales caused an immediate plunge in the buck, and a mirror image spike higher in gold and silver. Exactly the reverse took place following the FOMC announcement at 2pm – the dollar move was completely unwound, as was the rally in gold and silver.

So what did the Fed say? Yellen was clear that she wanted the drawdown in the Fed’s large bond portfolio to be a very boring “in the background, as-exciting-as-watching-paint-dry” event. She spelled out the particulars today: Fed would start reducing the portfolio at a rate of 10 billion per month, ramping up over time to 50 billion per month, with the goal being to eventually mop up all of those excess reserves. And it could happen “soon.” Maybe by next meeting, even. Yellen’s term is up February 2018. I’m guessing she wants to kick this program off before she goes out to work for a big hedge fund at $10m/year.

Gold’s round trip move today resulted in a shooting star candle print, which the code felt was bearish. While there was clearly a heavier-than-normal selling pressure today given the rise in open interest at COMEX, the coincident moves in the currency market suggests that a god chunk of gold’s round-trip performance today was supplied by real sentiment. The strong currency moves that happened at the same time gold both rose, and then fell, supports the case for both the initial rally at 830am as well as the sell-off after FOMC. In other words, it wasn’t all manipulation.

Open interest at COMEX for GC rose +5,267 contracts.

Rate rise chances (Dec 2017) are at 40%.

Silver rallied far more strongly after the weak retail sales report, but it gave almost all of it back again by the end of the day. Candle print was a high wave, with a very long upper shadow. Code was confused – it saw reasons to be both bullish and bearish by today’s print – slightly more bearish than bullish.

Open interest at COMEX for SI rose +1,832 contracts.

The gold/silver ratio fell -0.62 to 74.81. That’s a positive sign.

Miners were ripped to shreds today; gapping up on the open after gold’s pre-market rally, miners were sold hard throughout the morning, moving higher into the announcement in the afternoon. After the FOMC announcement the selling became far more intense, and by end of day, GDX was off -3.27% on very heavy volume, while GDXJ dropped -4.34% on heavy volume, after being up perhaps 2% at the open. GDX and GDXJ both printed a bear strong line/bearish engulfing candles, which the code felt were very bearish. The trading range was very large for both ETFs, and unquestionably bearish.

Platinum rose +1.25%, palladium fell -0.31%, while copper dropped -1.33%. Code felt all three prints were neutral, more or less.

The buck broke down hard and made a new low after Retail Sales, but the rally back following the FOMC announcement ended up with the buck down just -0.08 to 96.61. Candle print was a high wave – almost a hammer – which the code found to be bullish, with a 65% chance of marking a low here. If the dollar rally has legs, this would probably be bad for gold.

Crude plunged hard today, dropping -1.26 to 44.82. Crude fell off a cliff immediately after the 10:30am EIA report showed a -1.7 million barrel drop in oil inventories, and a +2.1 million barrel rise in gasoline stocks. Although the news didn’t look all that bad to me, the longs fled in panic. When a market sells off on good news, or even “no news” like today, it means that it really only feels like dropping, and that’s a really bearish sign. Oil is down $8 since the OPEC meeting. The glut continues, and the market appears to have given up hope that OPEC can turn the situation around. Here’s an article which references a report from the IEA that suggests we may have another 9 months of this before inventory levels are back in balance. And because of shale, and Nigeria, and Libya, and Iraq, maybe not even then.

SPX fell -2.43 to 2437.91. Consumer staples led higher (XLP:+0.63%) while energy did worst (XLE:-1.81%). SPX did initially sell off after the FOMC announcement, but it didn’t take long for the dip-buyers to appear, and they pulled prices back to almost even. Candle print was an opening black marubozu, which the code felt was mildly bullish. SPX remains above all 3 moving averages, and in an uptrend.

VIX moved up +0.22 to 10.64.

TLT was the big winner today, up +1.54%, breaking out to a new multi-month high immediately after the weak retail sales numbers. However unlike gold, the FOMC announcement did little to derail the enthusiastic bond market, which took comfort from low inflation numbers and poor consumer spending. Bonds, at least, seem to recognize bad news when they see it.

JNK fell -0.05%, mostly unchanged on the day.

CRB plunged -1.60%, making a new low. 3 of 5 groups fell, led by energy which dropped -3.30%. Commodities continue to look terrible.

The Fed seems quite serious about reducing its balance sheet. Perhaps the rate-rise campaign is over for now (even the Dec 2017 projections show just a 40% chance of an increase) but the next big move will be the start of the reduction operation. The punch bowl is really going to be taken away; admittedly, very, very slowly to start, but it doesn’t seem as though the Fed is going to stop its campaign short of an actual recession. I’m all in favor – they shouldn’t be in this business at all – but my feelings are completely independent of the effects on the markets.

Bonds don’t seem to mind, at least for now, since they will get a bid from the real buyers if things turn south. Weakening commodity prices (led by energy), and dropping retail sales all point to poor economic outcomes ahead. Bonds love that sort of thing, so they are fine.

Gold and silver, on the other hand, don’t like this environment all that much, at least as long as equities continue to have a bid. How long that continues with weak economic news is hard to know. The bid underneath the equity market appears to be very strong, for now.  If that weakens, then gold and silver should catch a bid.

The buck also seems to like what the Fed had to say. Or at least, what they heard seemed to counterbalance the bad news from retail sales.

We also have the BOE meeting tomorrow, and BOJ on Friday.

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