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PM Daily Market Commentary – 7/31/2019

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  • Thu, Aug 01, 2019 - 04:46am

    #1

    davefairtex

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    PM Daily Market Commentary – 7/31/2019

Gold fell -17.19 [-1.19%] on very heavy volume, and silver plunged -0.31 [-1.87%] to 16.28 on heavy volume. The buck shot up +0.46% along with bonds [10Y yield -4.0 bp], while both SPX [-1.09%] and crude moved lower [-0.72%].

At 2 pm, the FOMC announced a 25 bp rate decrease, as well as an early end to the balance sheet roll-off. There was some dissent on the committee; the vote was 8-2, with two members voting against a rate cut. After the announcement, Powell’s press conference was an attempt to explain why a “data driven” Fed would lower rates in the face of what is a reasonably strong economy.

Net-net, the Fed is allegedly cutting rates because of “cross currents in the global economy”, as well as the ongoing trade issues with China. The Fed cut rates once, and will now be “patient” and await more data. Cutting through all the crap, the key phrase today was this: today’s cut is a “mid-cycle rate adjustment”, which implies this is not going to be the start of a flurry of rate cuts that always happens in an attempt to forestall (or cushion) a recession.

This was a less-dovish-than-expected Fed position, and a bunch of items started selling off about 7 minutes into Powell’s press conference.

Gold fell going into the FOMC announcement, dropped further at 2 pm, bounced back, and then started selling off again at 2:37 pm. The bearish engulfing candle was definitely bearish (50%), and forecaster fell, moving back into a downtrend. The plunge also pulled the weekly forecaster into a downtrend as well. This leaves gold in a downtrend in both daily and weekly timeframes.

Gold/Euros fell today too, but its bearish engulfing was not bearish, and the GC.EUR forecaster remains in an uptrend. In fact, GC.EUR remains in an uptrend in all 3 timeframes. This suggests that the current PM correction is mostly a currency effect.

COMEX GC open interest rose 3,030 contracts.

Futures are projecting a 57% chance of one rate cut in September, an 82% chance of one rate cut by December, with a 39% chance of two cuts. The two-cut probability is substantially lower than where it was yesterday. Listening to the press conference, I’m thinking even this probability could well be too high, especially the chances of a cut in September.

Silver chopped lower leading up to the 2 pm announcement, seemed uncertain about direction until 7 minutes into Powell’s press conference, when it started moving lower once more, ending the day near the lows. The opening black marubozu was bullish (62%!) but forecaster dropped hard, back into a downtrend. Silver remains in an uptrend in both weekly and monthly timeframes. There looks to be rough support at round number 16.

COMEX SI open interest fell -2,533 contracts; 5 days of global production in paper taken off the market.

The gold/silver ratio jumped +0.59 to 87.23. That’s bearish.

The miners sold off for much of the day, rallying into the FOMC announcement, then selling off once again starting 7 minutes into Powell’s press conference. GDX plunged -4.78% on extremely heavy volume, while GDXJ dropped -5.58% on extremely heavy volume also.  XAU fell -4.99%, the swing high candle was bearish (61%) and forecaster moved lower into a downtrend. Today’s move also caused the weekly forecaster to drop into a downtrend too. That leaves XAU in a downtrend in both daily and weekly timeframes – but the monthly uptrend remains intact.

The GDX:gold ratio plunged -3.63%, while the GDXJ:GDX ratio dropped -0.84%. That’s very bearish.

Platinum fell -0.83%, palladium rose +0.35%, while copper moved down -0.62%. The other metals didn’t move all that dramatically – today’s moves were all about PM, although platinum started selling off a bit harder in early Asia trading.

The buck shot up +0.45 [+0.46%] to 98.01. That’s a breakout to a new multi-year high. The bulk of the move started at 2 pm, and continued during the press conference. The long white candle was bearish (41%), and forecaster moved slightly lower but remains in an uptrend. DX remains in an uptrend in both daily and weekly timeframes.

Large currency moves include: EUR [-0.72%], AUD [-0.42%], CAD [-0.33%]. The Euro made a new low (110.76) dating back to mid-2017.

Crude fell -0.42 [-0.72%] to 57.95. Crude was actually up on the day until the latter part of Powell’s press conference. The short black candle was mildly bearish (38%), and forecaster moved lower, but crude remains in an uptrend. The bullish-looking EIA report didn’t really move the needle (crude: -8.5m, gasoline: -1.8m, distillates: -0.9m). Crude remains in an uptrend in all 3 timeframes.

SPX plunged -32.80 [-1.09%] to 2980.38. Equities chopped sideways until 2 pm, when they spiked slightly lower off the initial announcement, but the real plunge started 7 minutes into Powell’s press conference. The long black candle was a bearish continuation, and forecaster dropped fairly hard, moving SPX into a downtrend. SPX remains in an uptrend in the weekly and monthly timeframes.

Sector map was led lower by staples (XLP:-2.03%) and materials (XLB:-1.54%), while energy (XLE:-0.32%) and REITs (XLRE:-0.40%) did best. This was a somewhat bearish sector map.

VIX jumped +2.18 to 16.12.

TLT jumped +0.80%, the strong line candle was a bullish continuation, and forecaster jumped higher into an uptrend. TY also climbed, moving up +0.17%; the long white candle was a bullish continuation, and forecaster moved higher into its uptrend. TY remains in an uptrend in all 3 timeframes. The 10-year yield fell -4.0 bp to 2.02%.

JNK fell -0.17%, driven lower by Powell’s press conference. JNK remains in a downtrend. The BAA.AAA differential rose +1 bp to +91 bp, but remains in a strong downtrend. The markets are showing no credit concern at the moment – although today’s events won’t show up in this series until tomorrow, since the series lags by one day.

CRB rose +0.10%, with only 1 of 5 sectors rising: energy (+1.04%). I think the CRB print came out at 2:30 pm, which was before Powell started talking.

So the FOMC announcement was just about as hawkish as you could have expected; the “mid-cycle rate adjustment” is all but saying “the economy is actually doing just fine but we are cutting rates because…because…cross-currents.” Yeah. And trade uncertainty. And we’re probably only going to do it this once.

While silver was clocked (and it continues to fall, along with platinum in the Asia trading session), gold actually held up fairly well. Powell’s comments were strongly dollar-positive. The majority of gold’s plunge was a currency effect – we can see that in how the two forecasters look at where prices go next. While gold’s daily and weekly are now in downtrends, the daily and weekly gold/Euro forecasters remain in uptrends.

Market selling off on “hawkish” news – that’s neither bullish nor bearish. We will have to see how long it lasts, and when the buyers start to appear.

Perhaps the miners will be the tell.

Good news is, now you can probably pick up some mining shares at a discount!  🙂

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  • Thu, Aug 01, 2019 - 09:03am

    #2

    davefairtex

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    that didn't take long

Strong AM rally in the mining shares after a gap-down open.

That “mining shares at a discount” seems to have attracted some bids.

  • Thu, Aug 01, 2019 - 10:51am

    #3

    davefairtex

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    10% tariffs on all remaining Chinese imports: starts Sep 1

Trump tweet 20 minutes ago:

Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to…

…buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and…

…during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%…

..We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!

Oil down $2, gold +12, silver +0.10, SPX -40, TLT +1.6%.

Miners now up +4.3%.

  • Thu, Aug 01, 2019 - 11:20am

    #4

    Chris Martenson

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    Trump China Tweet

OMG

Trump just undid a lot of very careful pumping of the “”markets”” all at once.

Of course if these Tweet-following algos had simply been trained to observe other venues and body language and such, they would have known the trade deal was dead a long time ago.

I personally didn’t see anything new in Trump’s characterization of the breakdown in trade talks that hasn’t been part of my framework for several months.

The extra 10% tariff, however, seems like a toothpick in China’s eye at a sensitive moment.  I’m glad I’m not a mega ag outfit with tens of millions of bushels of soybeans I can’t sell.

  • Thu, Aug 01, 2019 - 01:19pm   (Reply to #4)

    #5

    davefairtex

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    re: Trump China Tweet

I don’t think Trump had a choice.

China has a really good deal right now.  Of course they want to keep it.  Why wouldn’t they?  I think it really is like Trump says – they’re hoping Biden gets in.  So they stall, and wait, and pretend to negotiate with no intention of coming to a deal until 2020 is over.

So Trump has to make them pay to play the waiting game.  And manufacturers get to think for another 18 months if they really want to stay in China.  And more will leave.  Once they leave, they probably will not come back.  And this will place more pressure on China to come to a deal.

Meanwhile, the cross-currents just got a little more violent.  It will be interesting to see what the rate cut odds are tomorrow, yes?

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