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PM Daily Market Commentary – 7/11/2019

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  • Fri, Jul 12, 2019 - 12:49am

    #1

    davefairtex

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    PM Daily Market Commentary – 7/11/2019

Gold fell -15.26 [-1.07%] to 1414.20 on very heavy volume, while silver fell -0.12 [-0.82%] to 15.14 on moderate volume. The buck was mostly unchanged [-0.04%], SPX moved higher [+0.23%] along with crude [+0.25%], while bonds fell [10Y yield rose +5.9 bp].

The big economic news of the day was the CPI release, which came out at 8:30 am. Headline number was just +0.1% m/m (1.2% annualized), but the “less-food-and-energy” item was +0.3% m/m, or +3.6% annualized, and this is supposedly the number the Fed watches more closely. A hot CPI theoretically reduces the chances that the Fed will feel the need to lower rates.

Gold moved higher in Asia, retreated in London, and started selling off more briskly after that CPI report at 8:30 am. There were 3 high volume spikes down intraday – it felt as though someone was repeatedly hammering prices lower using the CPI report as the theoretical catalyst. The dark cloud cover candle was bearish (44%), but forecaster was little changed, remaining in an uptrend. Gold remains in an uptrend in all 3 timeframes.

COMEX GC open interest rose +389 contracts.

Futures are projecting a 100% chance of one rate cut in July and a 21% chance of two rate cuts, a 100% chance of at least one rate-cut by December, an 87% chance of at least 2 rate cuts, and a 50% chance of at least 3 rate cuts. That’s a relatively small decrease from yesterday.

Silver roughly followed gold’s track, rising slightly higher in Asia, and then selling off after the CPI report at 8:30 am. Silver’s long black candle was neutral, and forecaster fell, but just barely avoided falling into a downtrend. Silver remains in an uptrend in both daily and monthly timeframes, but the daily is right on the edge of a reversal.  Silver is not looking very strong right now.

COMEX SI open interest fell -271 contracts.

The gold/silver ratio fell -0.27 to 93.28. Normally I’d say that was bullish – but right now I think its just the marker of the safe haven nature of the current PM rally. Silver falls less than gold in the declines, but rises less during the rallies.

The miners fell for most of the day, managing to recover somewhat by the close. GDX fell -0.99% heavy volume, while GDXJ dropped -1.73% on heavy volume also. XAU declined -1.05%, the bearish harami was bearish (42%), and forecaster fell and is right on the edge of a reversal. While XAU is in an uptrend in all 3 timeframes, the near term momentum has definitely slowed.

The GDX:gold ratio rose +0.08%, and the GDXJ:GDX ratio fell -0.74%. That’s bearish.

Platinum fell -0.34%, palladium dropped -1.84%, while copper moved down -0.17%.

The buck fell -0.04 [-0.04%] to 96.52. The buck had fallen during Asia and London trading, but bounced back strongly following the CPI release at 8:30 am. The southern doji was mildly bullish (34%), and forecaster moved lower, keeping the buck in a mild downtrend. The buck remains in an uptrend in the weekly and monthly timeframes, but the monthly could reverse at any moment. As we move closer to the Fed meeting at end of month, I expect the buck to move lower.

There were no large currency moves today.

Crude rose +0.15 [+0.25%] to 60.47. Crude printed a doji star candle (49% bearish, ouch), and forecaster inched lower but remains in a very strong uptrend. Crude remains in an uptrend in all 3 timeframes, and all of the trends look reasonably strong.

SPX rose +6.84 [+0.23%] to 2999.91, which is another new all time closing high. SPX broke above round number 3000 intraday, but was not able to close above it. (Really? 0.09 points?) The doji candle was unrated, forecaster moved higher, and is now in a moderate uptrend. SPX remains in an uptrend in all 3 timeframes.

Sector map shows industrials (XLI:+0.68%) and financials (XLF:+0.57%) doing best, while REITS (-1.28%) and sickcare (XLV:+0.02%) at the bottom. That’s a relatively bullish sector map.

VIX fell -0.10 to 12.93. A sub-13 VIX has been a low point for risk over the past six monts.

TLT plunged -1.34%, a large move lower; forecaster dropped into a strong downtrend. TY fell too, losing -0.49%, making a new low. The long black candle was a bullish continuation, and forecaster moved lower into a strong downtrend. In spite of the sharp decline, TY still remains in an uptrend in both weekly and monthly timeframes. The 10-year yield jumped +5.9 bp to 2.12%.

JNK fell -0.19%, with JNK remaining in a downtrend. Falling JNK prices don’t support risk on. The BAA.AAA differential fell to 1.02%; it didn’t seem much disturbed by Powell’s testimony. It remains in a mild uptrend – but is not showing much sign of credit stress right now.

CRB fell -0.27%, with 4 of 5 sectors moving lower, led by livestock (-1.15%). Today was a small retracement of yesterday’s big metals and energy rally.

So did the CPI report mean anything?  It makes it harder for the Fed to claim that it is “data driven” if/when it lowers rates at the meeting in two weeks, that’s for sure.  When even government-measured inflation starts to pick up, even after eliminating food & energy, even in the face of globalization – which has hammered wages for a generation here in the US – the Fed may have to take notice.  I mean, it probably won’t, but who knows?  Boy, if Trump did manage to bring manufacturing back to the US, what a disaster that would be for the Fed’s whole “inflation-fighting” thing.  I’m guessing: the “well-anchored inflation” thing is just a generation of deliberate wage-debasement (migrant-importing and job-exporting).  And the Fed wants to fight this by lowering rates? Sheesh.

It sure felt to me as though gold’s decline today was a bit overdone, “helped” lower by some official (or semi-official) selling.  Why semi-official?  The COT report from last week shows the commercial shorts are at the 3rd highest level in history, so this pounding we saw today might just be a move by the very strongly positioned commercials desperate to keep this gold rally from getting out of control.

Consider: if gold has broken out above 1400, and the Fed hasn’t even started to raise rates yet, what will happen once rates really start to be cut?  Presumably the buck will fall – unless the rest of the world simply explodes – and the bid underneath gold will become even more intense.  Commercials are all in short; 1390 tons of paper, or 56% of annual global production in paper gold.

So we should probably expect assaults on gold every time a “positive” economic report appears.  How effective will that be?  Well, if the Fed can ignore Nonfarm Payrolls at +224k, they’ll probably also ignore the less-food-and-energy-CPI at +0.3% m/m.  Could we see new highs for gold by end of July – triggered by that Fed rate increase?  We sure could.

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  • Fri, Jul 12, 2019 - 05:52am

    #2

    Cold Rain

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    Below $1400

No way they are going to let gold close above $1400 on the week.  You can see it in the action already.

Anyway, another good write-up Dave.  Thanks for all of the great info every day.

  • Fri, Jul 12, 2019 - 07:46am

    #3

    Adam Taggart

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    Martin Armstrong is our next PP podcast guest

Announcing this here, as I know Davefairtex is a fan:

We just recorded our latest PP podcast, with Martin Armstrong as the guest.

We’re editing and transcribing it now. The podcast should be live on the site by Monday.

cheers,

A

  • Fri, Jul 12, 2019 - 09:01am   (Reply to #3)

    #4

    davefairtex

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    re: Martin Armstrong is our next PP podcast guest

Always happy to hear from Martin Armstrong.   Now I’d be asking him questions about how his code works, which of course is why you didn’t let me anywhere near him… 🙂

His latest thing – he was talking about Japan, and how they’ve monetized debt equal to 50% of GDP.  He thinks: at some point, people will figure out what’s going on with the sovereign debt worldwide.  At that point, confidence will snap, and everyone will panic out of sovereign debt, and rates (of the sovereign debt) will shoot the moon.

But people are not there yet.  Confidence remains.

Although the bid underneath gold hints at a certain level of concern…

  • Fri, Jul 12, 2019 - 10:02am

    #5

    sand_puppy

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    Michael Hudson: De-Dollarizing the American Empire

A wonderful interview that even a non-financial guy like myself can follow.

Conclusion: The lowering of interest rates hurts the American Worker and does not return manufacturing to the USA.  Only the owner class benefits.

Bonnie Faulkner: Why is President Trump insisting that the Federal Reserve lower interest rates? I thought they were already extremely low. And if they did go lower, what effect would this have?

Michael Hudson: Interest rates are historically low, and they have been kept low in order to try to keep providing cheap money for speculators to buy stocks and bonds to make arbitrage gains. Speculators can borrow at a low rate of interest to buy a stock yielding dividends (and also making capital gains) at a higher rate of return, or by buying a bond such as corporate junk bonds that pay higher interest rates, and keep the difference. In short, low interest rates are a form of financial engineering.

Trump wants interest rates to be low in order to inflate the housing market and the stock market even more, as if that is an index of the real economy, not just the financial sector that is wrapped around the economy of production and consumption. Beyond this domestic concern, Trump imagines that if you keep interest rates lower than those of Europe, the dollar’s exchange rate will decline. He thinks [incorrectly] that this will make U.S. exports more competitive with foreign products.

Trump is criticizing the Federal Reserve for not keeping interest rates even lower than those of Europe. He he thinks that if interest rates are low, there will be an outflow of capital from this country to buy foreign stocks and bonds that pay a higher interest rate. This financial outflow will lower the dollar’s exchange rate. He believes that this will increase the chance of rebuilding America’s manufacturing exports.

This is the great neoliberal miscalculation. It also is the basis for IMF models.

How low interest rates lower the dollar’s exchange rate, raising import prices

Trump’s guiding idea is that lowering the dollar’s value will lower the cost of labor to employers. That’s what happens when a currency is devalued. Depreciation doesn’t lower costs that have a common worldwide price. There’s a common price for oil in the world, a common price of raw materials, and pretty much a common price for capital and credit. So the main thing that’s devalued when you push a currency down is the price of labor and its working conditions.

Workers are squeezed when a currency’s exchange rate falls, because they have to pay more for goods they import. If the dollar goes down against the Chinese yen or European currency, Chinese imports are going to cost more in dollars. So will European imports. That is the logic behind “beggar my neighbor” devaluations.

How much more foreign imports will cost depends on how far the dollar goes down. But even if it plunges by 50 percent, even if the dollar were to become a junk currency like the Argentinian or other Latin American currencies, that cannot really increase American manufacturing exports, because not much American labor works in factories anymore. Workers drive cabs and work in the service industry or for medical insurance companies. Even if you give American workers in manufacturing companies all their clothing and food for nothing, they still can’t compete with foreign countries, because their housing costs are so high, their medical insurance is so high and their taxes are so high that they’re priced out of world markets. So it won’t help much if the dollar goes down by 1 percent, 10 percent or even 20 percent. If you don’t have factories going and if you don’t have a transportation system, a power supply, and if our public utilities and infrastructure are being run down, there’s nothing that currency manipulation can do to enable America to quickly rebuild its manufacturing export industries.

American parent companies have already moved their factories abroad. They have given up on America. As long as Trump or his successors refrain from changing that system – as long as he gives tax advantages for companies to move abroad – there’s nothing he can do that will restore industry here.

  • Fri, Jul 12, 2019 - 10:24am

    #6

    thc0655

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    Martin Armstrong

Whatever you do, DON’T ask him about climate change!!  🤭

  • Fri, Jul 12, 2019 - 10:29am

    #7

    Mark Cochrane

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    re: Martin Armstrong is our next PP podcast guest

While I find his insights on markets and economies interesting my faith in his reasoning has diminished since he has decided that he is also an expert on climate issues (e.g. link). I could easily cherry pick and misrepresent a few economists to say absolutely anything about the future global (or U.S.) economy. If ever I try to give everyone investment advice based on my scientific expertise in unrelated fields, feel free to point out the absurdity.

If I had to sum up the problem of the human condition it is that more people believe in economics than physics.

  • Fri, Jul 12, 2019 - 10:42am

    #8

    sand_puppy

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    And Mark Cochrane …

I need an analysis of a knowledgable person on this topic.  Could you comment on the idea that high energy particles from space (“galactic cosmic rays”??) are increasing cloud cover

A new scientific study could bust wide open deeply flawed fundamental assumptions underlying controversial climate legislation and initiatives such as the Green New Deal, namely, the degree to which ‘climate change’ is driven by natural phenomena vs. man-made issues measured as carbon footprint. Scientists in Finland found “practically no anthropogenic [man-made] climate change” after a series of studies.

Finnish researchers’ theory: “New evidence suggests that high-energy particles from space known as galactic cosmic rays affect the Earth’s climate by increasing cloud cover, causing an ‘umbrella effect’,” the just published study has found, a summary of which has been released in the journal Science Daily. The findings are hugely significant given this ‘umbrella effect’ — an entirely natural occurrence — could be the prime driver of climate warming, and not man-made factors.

Anything to this?

  • Fri, Jul 12, 2019 - 10:45am   (Reply to #2)

    #9

    davefairtex

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    re: Below $1400

CR-

I dunno.  It took a lot for them to punch the price down yesterday – and that’s with a bullish CPI to help out.  The miners look ok too.  There really are buyers right now, even after this long run up.  I think if price drops, it won’t drop too far.

Again, rates haven’t even been cut yet.  This rally to 1400 is just the down payment.  I project this by what prices have already done given where we are in the cycle.

And look past the Fed – what’s the ECB going to do?   Go more deeply negative as things turn down?  That just keeps the zombies alive.

The more negative rates go, the better gold will look.

That’s not something in the far future.  That’s coming up in the next 3-6 months.  And everyone knows it.

  • Fri, Jul 12, 2019 - 11:39am   (Reply to #8)

    #10

    Mark Cochrane

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    re: And Mark Cochrane …

Hello Sand Puppy,

I saw that ‘sensational’ headline yesterday. However, if you look at the actual article in Science Daily, the “materials provided by Kobe University” or the actual scientific paper that was published (link), none of them make the supposed earth shattering claims in the zero hedge piece.

The scientific work showed a correlation between proxies of East Asian monsoon strength and the last magnetic reversal (~780 k years ago). The premise being that the weakened magnetic field (down to about 25% at the lowest) allowed more galactic cosmic ray (GCR) flux to reach into the atmosphere. The upshot being the potential for greater cloud formation.

So, somehow, based on correlations for possible processes that took thousands of years to take place in one region (without replication as of yet) we are supposed to conclude 100 years of scientific studies and actually demonstrated, studied and well-quantified physical processes are all bunk. Of course the magnetic field hasn’t actually collapsed yet (the pole is moving somewhat though), so why this process has supposedly yielded everything that has happened to the global climate in the last 30 years is curious to say the least, if this is “the” mechanism to rule them all. Of course if greenhouse gases such as carbon dioxide where as inconsequential as the zerohedge piece implies then we wouldn’t be here in the first place because the planet would have an average temperature of -18C (~0F) versus ~15C (59F). The ‘greenhouse effect’ isn’t new, its the reason why our planet is livable. So we should be mindful of its importance and stop playing with the Earth’s thermostat…

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