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PM Daily Market Commentary – 8/27/2018

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  • Mon, Aug 27, 2018 - 09:09pm

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    davefairtex

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    PM Daily Market Commentary – 8/27/2018

Gold rose +5.30 [+0.44%] to 1218.80 on moderate volume, while silver climbed +0.07 [+0.51%] to 14.86 on very heavy volume. The buck plunged -0.40%, which accounts for the move in the metals today.

The big news item today was the successful conclusion of the US-Mexico NAFTA renegotiation. And when I say successful, I really mean that Trump appears to be doing what the US did in Vietnam in 1972: “declare victory, then return home.” Trump allegedly was attempting to help US workers by addressing the issue of jobs leaving the US for much lower-wage countries. While US auto workers make about $30/hour, workers in Mexico make $3 per hour. From all indications, even after this renegotiation, that low-wage situation remains in largely in place and unaddressed. The goods deficit with Mexico is $71 billion per year, #3 below the EU (-$151 billion) and China (-$343 billion).

Wolf Richter lays it out “success” in detail: https://wolfstreet.com/2018/08/27/nafta-is-dead-long-live-nafta/

From the market perspective, substantial uncertainty was removed from the segments of the equity market that depend on cheap Mexican labor. As a result, those equities rallied. From that, we get a sense as to who the winners and losers might be – namely, corporate America remains the winner, with their tariff-free low-wage-manufacturing enterprise remaining largely intact. Woo hoo. Shareholders and executives win again.

Gold roughly tracked currency, moving lower earlier in the day, then moving higher as the buck fell. The long white candle was a bullish continuation, and forecaster moved up +0.08 to +0.38. If prices close here at end of week, gold weekly forecaster will issue a buy signal. Monthly remains in a downtrend.

COMEX GC open interest rose +3,348 contracts. The shorts are coming back.

Rate rise chances (September 2018) remains at 98%.

Silver roughly tracked gold, making a new high to 14.88. Silver’s short white candle was a bullish continuation, and silver forecaster jumped +0.15 to +0.16, which is a buy signal for silver. Silver remains in a downtrend in the weekly and monthly timeframes.  Silver appears to be making very slow progress towards recovery.  That’s not a great sign.

COMEX SI open interest fell -2,127 contracts. Some short-covering, which beats what we saw in gold today.

The gold/silver ratio fell -0.06 to 82.02. That’s neutral.

Miners moved higher, with GDX up +1.74% on heavy volume, while GDXJ climbed +2.16% on very heavy volume. XAU rose +1.64%, making a new high. The short white candle was a bullish continuation, but forecaster fell -0.13 to +0.21. That’s still an uptrend though, and the forecasters for both ETFs actually looked much stronger. XAU remains in a downtrend in the weekly and monthly timeframes.  On the chart, you can see that XAU is far below its 50 MA – much further below than gold, and further below even than silver.

The GDXJ:GDX ratio rose +0.41%, while the GDX:$GOLD ratio climbed +1.30%. That’s bullish.

Platinum climbed +1.59%, palladium rose +1.55%, and copper moved up +0.59%. It was a good day for the metals group, with platinum and palladium moving much more strongly than currency could explain – although the timing of the rallies was definitely tied to currency moves. All the other metals are in uptrends at this point. Was the US-Mexico tariff handshake-agreement the cause? Could be. There was minor short-covering in all the other metals today also.

The buck fell -0.38 [-0.40%] to 94.38, plunging below its 50 MA, and generally looking quite bearish. The move caused the weekly forecaster to issue a sell signal – assuming we close here at end of week. Monthly remains in an uptrend. Looking at the currency map, today’s move was mainly about EUR/USD and USD/CAD.

Turkish lira is starting to fall once again; USD/TRY was up +2.86% today to 6.15, but that’s still well below the peak of 6.86 reached two weeks ago.  Still, I think the respite may be over for Turkey.

Crude moved up +0.39 [+0.57%] to 68.63. Crude just steadily moved higher for most of the day. There was no major news that I saw. The short white candle was unrated, while forecaster dropped -0.22 to +0.02, which is almost a sell signal. Crude remains in an uptrend in all 3 timeframes, but the falling daily suggests momentum may be slowing down significantly. API report is out tomorrow after market close.

SPX shot up +22.05 [+0.77%] to 2896.74, which is a convincing new all time high. All signals are bullish right now. Sector map has materials (XLB:+1.37%) financials (XLF:+1.35%) and industrials (XLI:+1.26%) in the lead, with staples (XLP:+0.06%) and utilities (XLU:-0.61%) trailing. That’s a bullish sector map. The “end of August” doesn’t seem to be causing any problems at all for equities. Well, except for TSLA, which sold off a bit after Musk decided not to take it private after all. “I’m shocked, simply shocked” that TSLA isn’t going to be taken private.

VIX rose +0.17 to 12.16.

TLT plunged -0.57%, which was not quite a swing high. TY also fell -0.21%, taking TY below its 9 MA for the first time in several weeks. TY forecaster is on the edge of issuing a sell signal, while the weekly and monthly remain in uptrends. The 10-year yield rose +2.2 bp to 2.85%.

JNK moved up +0.06%, making a new high, but not a very strong move. JNK remains in an uptrend and continues to signal “risk on”, although not as loudly as it might given the move in equities.

CRB rose +0.41%, with 3 of 5 sectors rising, led by livestock (+3.25%).

It looks as though 2 of the 3 major tariff renegotiations struggles (EU, and now Mexico) are moving towards some sort of resolution. That leaves only China. Based on the “success” in the Mexico renegotiation, its not clear just how much Trump really wants to fight for his base – so we might get a near-term cosmetic “success” in China too, in the near future. That may help Trump electorally at the midterms, but it won’t really bring jobs back to the US.

If the wage issues aren’t addressed, corporate America will continue to globalize and outsource, and US workers will continue to suffer from wage debasement, and that 30 year trend of declining wages & salaries as a % of GDP chart will just keep moving lower and lower.

The most-optimistic scenario I can imagine is that Trump is willing to declare victory in Mexico (i.e. throw US workers to the wolves, just rearranging the deck chairs here and there) in exchange for focusing entirely on China, which does happen to be the biggest problem in terms of goods deficit.

Apart from the negative long term effects on US workers, the Mexico settlement does appear to be positive for commodities, which includes gold and silver. And it is definitely positive for equities, especially for those who have sent jobs south of the border.

A tariff settlement will also probably be dollar-negative, as it will encourage capital to flow back into emerging market nations, and that should help gold too.

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