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PM Daily Market Commentary – 8/14/2019

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  • Thu, Aug 15, 2019 - 12:51am

    #1

    davefairtex

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    PM Daily Market Commentary – 8/14/2019

Gold jumped +14.72 [+0.97%] to 1527.98 on very heavy volume, while silver rallied +0.27 [+1.59%] to 17.30 on heavy volume. The buck moved up [+0.18%], bonds rallied sharply [10Y yield -9.9 bp], while SPX [-2.93%] and crude [-3.18%] were hit hard.

Supposedly, the inverting yield curve was the “reason” for the smash in equity prices today. I say “supposedly” because it doesn’t make any sense to me.  It feels like just a story to explain the large move lower.

Gold moved sideways until about 6 am, when it suddenly jumped higher, moving up about $20 over the next 9 hours, then fading into the close. The long white candle was a bullish continuation, and forecaster moved higher into its uptrend. Gold remains in an uptrend in all 3 timeframes. Gold hit a new 6-year closing high today.

COMEX GC open interest rose +5.731 contracts. More shorting into this very strong rally.

Futures are projecting a 100% chance of one rate cut in September, a 33% chance of two rate cuts. The December projection is 100% chance of one rate cut, an 91% chance of two cuts, a 54% chance of 3 cuts. That’s a large increase from yesterday.

Silver’s rally started in the Asia session, and continued through the early afternoon in the US. The long white candle was neutral, and forecaster inched lower but remains in an uptrend. Silver remains in an uptrend in all 3 timeframes, with the longer term timeframes looking especially strong.

COMEX SI open interest fell -120 contracts.

The gold/silver ratio fell -0.54 to 88.32. That’s bullish.

The miners gapped up at the open, then sold off for most of the day, ending the day at the lows. GDX fell -0.14% on on moderately heavy volume, and GDXJ dropped -0.80% on moderate volume. XAU moved down -0.39%, the closing black marubozu candle was a bearish continuation, and forecaster was unchanged, remaining in a strong downtrend. XAU remains in an uptrend in both weekly and monthly timeframes, but those uptrends are weakening right now.

How can the miners sell off when gold and silver both rally? I saw this happen in 2008; sometimes when equities sell off hard like they did today, it pulls down the mining shares too. And today, GDX was the top performing equity group on my list, so it is not like the miners are really doing badly compared to the other sectors.

The GDX:gold ratio fell -1.10%, and the GDXJ:GDX ratio dropped -0.66%. That’s bearish.

Platinum fell -1.18%, palladium dropped -2.00%, and copper moved down -1.54%. These were large moves, and perhaps had to do with China reporting a very weak INDPRO number (4.8% vs 6.3% for June), which was lower than anytime during the 2008 crash. I found it interesting that silver was able to rally strongly in spite of copper’s large decline. I think that’s positive for silver.

The buck rose +0.18 [+0.18%] to 97.54. The long white candle was a bullish continuation, and forecaster moved into an uptrend. This puts the buck in an uptrend in both daily and weekly timeframes.

Large currency moves include: AUD [-0.62%], JPY [+0.60%], CAD [-0.63%], CNY [+0.71%]. CNY moved higher – it weakened – probably a result of those weak production numbers.

Crude fell -1.80 [-3.18%] to 54.80. Prices started falling at around 6 am, and except for a brief rally after the EIA report at 10:30 (crude: +1.6m, gasoline: -1.4m, distillates: -1.9m), continued falling until about 1 pm, after which it bounced back into the close. The dark cloud cover was actually not bearish, and forecaster moved lower but remains in an uptrend. Today’s drop was enough to pull the weekly back into a downtrend. Crude is now in an uptrend in just daily and monthly timeframes, and the monthly remains fairly weak.

SPX plunged -85.72 [-2.93%] to 2840.60. Most of the losses (some 50 points) came in the futures markets overnight. The black marubozu was a bearish continuation, and forecaster plunged into a downtrend. Today’s move was enough to pull both weekly and monthly into a downtrend too – SPX is now in a downtrend in all 3 timeframes.  Ouch.

Sector map was led lower by energy (XLE:-3.92%) along with financials (XLF:-3.71%), while utilities (XLU:-0.82%) and REITs (XLRE:-1.56%) did “best”. Actually the miners did best, but they aren’t on the mainstream sector map. This was a bearish sector map.

VIX jumped +4.58 to 22.10.

TLT jumped +2.25%, which is a new all time high for TLT. It is also an all-time low for the 30-year yield: 2.03%, which fell -13 bp just today. TY rose +0.65%, which is a new high for TY also, but not a new all time high. The 10-year yield fell -9.9 bp to 1.58%. TY remains in an uptrend in all 3 timeframes.

JNK plunged -0.86%, a sharp move lower. The forecaster plunged into a downtrend. BAA.AAA rose to +89 bp; but that’s yesterday’s news. We will have to wait for tomorrow to see how the big market moves affected the differential.  If at all.  Who knows, it might have rallied, expecting the ECB to step in and buy more crappy debt to “stimulate the economy.”

CRB fell -1.41%, with 3 of 5 sectors falling, led by energy (-2.87%).

Headfake, headfake. Bonds have been right all along. They are the big market, and very hard to manipulate – except with “real money”, such as 4 trillion newly-printed dollars from the Fed. Gold also didn’t take the bait either. It remains in an uptrend.

The miners look weak, but I believe that’s just an artifact of heavy selling in the equity markets. When there is selling of an index, that puts selling pressure on all companies in that index, and there are miners in each index – large cap, midcap, smallcap, etc. So when the smallcap index gets sold, miners get sold too.

Was today all about the 2-10 inversion? Well, I don’t think so. I think the inversion was a product of economic concerns and international capital flows that have been going on for a while now. Perhaps the equity market just noticed, but the 30-year didn’t get to a 2.03% yield overnight. It has been falling, and falling, and falling for months now. If anything, bonds are heavily overbought. (Checking). Yes, the 30-year yield is at RSI-7=89. Heavily overbought. (Yields fall = bond prices rise = overbought).  Money is flooding into bonds.  At this point, it doesn’t care about yield, it cares about getting repaid.

US retail sales and INDPRO come out tomorrow morning before market open.

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  • Thu, Aug 15, 2019 - 08:27am

    #2

    davefairtex

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    Retail Sales, INDPRO

Retail Sales:

Headline number +0.7% m/m (+8.4% annualized), less-autos: +1.0% m/m, less-autos-and-gas: +0.9% m/m.  This is a strong Retail Sales report.

Industrial Production:

Headline number -0.2% m/m (-2.4% annualized), manufacturing: -0.4% m/m.  The only reason the headline number was “this good” was because of weather-variable utilities, which rose +3.1% m/m.  Otherwise, this was a distinctly recessionary INDPRO number.

Looks like US manufacturing is following Germany and China into contraction, while retail sales remains strong.  The markets didn’t move on either report.

  • Thu, Aug 15, 2019 - 09:31am

    #3

    davefairtex

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    China: "middle income trap"

Maybe you guys know about this – I didn’t.  Rickards on China:

https://dailyreckoning.com/china-paper-tiger/

… at $11,000 per capita GDP, China is stuck squarely in the “middle income trap” as defined by development economists. The path from low income (about $5,000 per capita) to middle-income (about $10,000 per capita) is fairly straightforward and mostly involves reduced corruption, direct foreign investment and migration from the countryside to cities to purse assembly-style jobs.

The path from middle-income to high-income (about $20,000 per capita) is much more difficult and involves creation and deployment of high-technology and manufacture of high-value-added goods.

Among developing economies (excluding oil producers), only Taiwan, Hong Kong, Singapore and South Korea have successfully made this transition since World War II. All other developing economies in Latin America, Africa, South Asia and the Middle East including giants such as Brazil and Turkey remain stuck in the middle-income ranks.

China remains reliant on assembly-style jobs and has shown no promise of breaking into the high-income ranks.

  • Thu, Aug 15, 2019 - 05:53pm

    #4

    Michael_Rudmin

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    China halting gold imports

At least short term, I think this could make gold more desirable to Chinese.

 

https://www.aljazeera.com/ajimpact/china-curbs-gold-imports-trade-war-heats-190814232249788.html

 

 

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