PM Daily Market Commentary – 8/13/2019

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  • Wed, Aug 14, 2019 - 03:33am

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    davefairtex

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    PM Daily Market Commentary – 8/13/2019

Gold fell -9.82 [-0.64%] to 1513.26 on extremely heavy volume, while silver dropped -0.12 [-0.70%] to 17.03 on extremely heavy volume also. The buck jumped higher [+0.43%], along with crude [+3.70%] and SPX [+1.48%], while bonds fell [10Y yield +4.1 bp].

The market-moving news of the day was an announcement by the White House that some of the tariffs on imports from China would be delayed until December 15th. From what I could see, the news hit just after market open at roughly 9:35 am; this immediately drove equities higher along with copper and crude, while gold, silver, and to some extent bonds sold off.

Another news item which affected prices was the CPI release at 8:30 am; headline number was +0.3% m/m, and so was the “less-food-and-energy” component: +0.3% m/m, which is an annualized rate of +3.6%. Medical care services: +0.5% m/m. And that’s government inflation – which includes all those fantastic hedonic adjustments. Rising inflation makes it more difficult for the Fed to justify a rate cut.

Gold fell -9.82 [-0.64%] to 1513.26. Gold rallied sharply in Asia, hitting a new high of 1546 by 6 am; it then retreated until the CPI report hit at 8:30 am, when it spiked down perhaps $7, but the real move came after the tariff announcement at 9:35: gold fell perhaps $40 in 25 minutes. It did bounce back, but not enough for gold to close green. The dark cloud cover was bearish (44%), and forecaster dropped but remained (just barely) in an uptrend. Gold remains in an uptrend in all 3 timeframes.

COMEX GC open interest fell -3,934 contracts. That’s a good sign – possibly just short-covering on the big spike down intraday.

Futures are projecting a 100% chance of one rate cut in September, a 5% chance of two rate cuts. The December projection is 100% chance of one rate cut, an 86% chance of two cuts, a 38% chance of 3 cuts. That’s a decline from yesterday – especially for September.

Silver fell -0.12 [-0.70%] to 17.03. Silver rallied sharply in Asia along with gold, making a new high to 17.47, but then moved lower, with the selling accelerating after the tariff news at 9:30 am. Silver had a $1 trading range today. The bearish engulfing was definitely bearish (51%), but forecaster moved higher and remains in an uptrend. Silver remains in an uptrend in all 3 timeframes.

COMEX SI open interest rose +1,514 contracts.

The gold/silver ratio rose +0.05 to 88.86. That’s neutral.

The miners gapped up at the open, then sold off when the tariff news hit right along with gold. GDX fell -1.90% on very heavy volume, while GDXJ dropped -2.27% on very heavy volume also. The XAU series didn’t update properly from my data service, so I’ll provide GDX today.  The GDX opening black marubozu was a bearish continuation (and a 4-candle swing high), and forecaster fell, moving deeper into a downtrend.   The move also took GDX below its 9 MA.  Miners are now in an uptrend in just weekly and monthly timeframes.

The GDX:gold ratio fell -1.26%, and the GDXJ:GDX ratio dropped -0.38%. That’s bearish.

Platinum dropped -0.33%, palladium rose +1.65%, and copper rallied +1.94%. All 3 of these moves were triggered (more or less) by the tariff news at 9:35 am. The long white candle was bullish (45%),

The buck rallied +0.42 [+0.43%] to 97.36. The buck was all over the map today, but the final move higher did align with the tariff news released at 9:35 am. The long white candle was bullish (45%) but forecaster was little changed, remaining in a slight downtrend. The buck remains in a downtrend in both daily and monthly timeframes.

Large currency moves include: EUR [-0.35%], JPY [-1.28%], CNY [-1.43%]. CNY rallied hard on the tariff news.

Crude rallied 2.02 [+3.70%] to 56.60. All of today’s move came following the tariff announcement at 9:35 am. The long white candle was a bullish continuation, and forecaster jumped sharply higher, and is now in a very strong uptrend. Today’s move took crude back above its 50 MA, and it also caused a reversal on the weekly chart as well. (The currently-forming weekly swing low is quite bullish: 74%). This leaves crude in an uptrend in all 3 timeframes.

SPX rallied +42.57 [+1.48%] to 2926.32. As with crude, all of the gains came following the tariff announcement at 9:35 am. The bullish engulfing was actually neutral, and forecaster was largely unchanged, remaining in a mild uptrend. Today’s move took SPX back above its 9 MA, and also pulled the weekly back into a very slight uptrend. This leaves SPX in an uptrend in all 3 timeframes – although the trends are not very strong.

Sector map was led higher by tech (XLK:+2.52%) and discretionary (XLY:+1.65%), while REITs (XLRE:+0.05%) and utilities (XLU:+0.07%) did worst. This was a bullish sector map.

VIX plunged -3.57 to 17.52.

TLT fell -0.34%, the long black candle was mildly bearish (36%), but forecaster moved higher and remains in a strong uptrend. TY also fell, losing -0.47%; the long black candle was bearish (44%) and forecaster edged lower but remains in an uptrend. TY remains in an uptrend in all 3 timeframes. The 10-year yield rose +4.1 bp to 1.68%. Given all the fuss in equities, gold, and crude, the move in the bond markets was quite mild by comparison.

JNK rose +0.34%, the confirmed bullish doji was bullish (55%), and while forecaster moved a bit lower, it remains in an uptrend. BAA.AAA fell to +87 bp. Low-quality debt remains well bid.

CRB rose +1.44%, with 2 of 5 sectors rising, led by energy (+4.20%). Livestock cratered (-4.24%).

Gold had a huge trading range today, as did silver – first the dramatic breakout to new highs, and then the announcement of the partial tariff suspension.   While momentum has definitely slowed for gold, it has yet to reverse, and the longer term trends remain quite strong.  The same holds true for bonds.

Based on the sharp drop in CNY after the tariff announcement, I’m guessing that some amount of the bid under gold has to do has to do with the risks of implosion of China’s currency and banking system.  A 10% tariff isn’t enough to materially move the needle by itself, but a 25% tariff really could.  The sense I have is that the market is trying to read the tea leaves to figure out just how irritated the two countries are at one another.  Will the US blow up China’s manufacturing and by extension, its banking system?  A 25% tariff would do that.  So far, the answer seems to be “no”.  So CNY rallies.

While the propaganda (“Everything Trump does is bad” + “China is our pal (and our advertisers’ cheap labor source)”) suggests that the US is doomed if it ever fights back against China’s (with their US corporate allies) mercantilist policies, USD/CNY is saying something entirely different.  Supposedly, China has lost 2 million jobs to date because of the trade war.  At the same time, China is supposedly “very patient” – dictator for life and all that – except they are not showing any patience with Hong Kong.  They want to control it – right now.  Not in 27 years.  Now.  That’s what that Hong Kong “extradition” law was all about – the ability to send protesters off to the tender mercies of the mainland legal system, in order to impose control over this wayward gem through the back door, 27 years ahead of schedule.

Just maybe – they aren’t any more patient than we are?  Maybe like everywhere, the old men in charge feel the clock of mortality ticking away, and want to accomplish something amazing today – not 27 years from now, after they are long gone.  If true, this doesn’t bode well for Hong Kong.  Or CNY/USD.  But it is probably good for gold.

So far, the fantastic tariff news just arrested the move higher in gold and bonds.  And in fact, the fantastic tariff news didn’t actually make things better – it just avoided making things worse.  For China, not the US.  After all, Wolf Richter tells us that the impact of the tariffs aren’t even showing up in US inflation data at all.  On the ground, tariffs appear to be a tax on both foreign and US corporations that have globalized the labor force, and not on US consumers.  Trump was right, at least so far.  Imagine that?

https://wolfstreet.com/2019/08/13/inflation-data-shows-tariffs-are-not-a-tax-on-consumers-but-on-foreign-us-corporations/

We need a few days for the market to digest today’s announcement.  Then we will see what, if anything, happens to the current trends.  So far at least, bonds are not impressed.

Retail Sales and INDPRO are coming out Thursday before market open.  Hopefully they will provide some more information.

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