PM Weekly Market Commentary – 06/05/2020

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  • Sat, Jun 06, 2020 - 10:20am

    #1

    davefairtex

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    PM Weekly Market Commentary – 06/05/2020

Gold plunged -31.79 [-1.84%] to 1692.83 on moderately heavy volume, and silver fell -0.40 [-2.21%] to 17.68 on very heavy volume. The buck moved higher [+0.28%], SPX rallied strongly [+2.62%] as did crude [+4.27%], while bonds fell [the 10-Year yield rose +8.0 bp]. It was a risk on day.

Market-moving news: Nonfarm Payrolls were shockingly better than expected; headline +2.5M, when a 3-11 million job drop was being projected. When the numbers were released at 8:30 am, markets reacted strongly: PM sold off, risk assets shot higher, and bonds fell.

That said – the market’s reaction was NOT because we are now seeing a V-shaped recovery, but because the job losses appear to have largely stopped instead of plummeting further. And while adding 2.5 million jobs sounds like a lot (and it normally would be a lot), here is a chart that shows you Friday’s numbers in context:

The metals sector map has silver leading gold lower, and the miners split; senior miners leading metals lower, but the juniors for
some reason stuck in the middle of the pack. Copper and palladium did best. The metals sector map is a bit of a mess, but the strong rally in copper, and the plunge in silver and gold more or less adds up to “risk on.”

For the week, gold plunged -51.68 [-2.96%] to 1692.83 on moderately heavy volume. The long black candle was a bearish continuation, forecaster fell, moving into a downtrend. Gold is now in a downtrend in both the daily and weekly timeframes.

Gold/euros plunged -71.51 [-4.55%] to 1499.13 on moderately heavy volume. The long black candle was a bearish continuation, and forecaster fell, dropping into a downtrend. Gold/euros is now also in a downtrend in both the daily and weekly timeframes.

COMEX GC open interest rose +154 contracts on Friday, and fell -39K contracts this week. That was -13 days of global annual production in paper removed from the market. Current open interest for GC: 44% of global annual production, down -3.63% this week.

Gold commercial net rose +18K contracts, which was -41K fewer shorts and -23K fewer longs. Gold managed money net fell -13K contracts, which was +815 new shorts, and -12K fewer longs.

There was a lot of short-covering this week; this showed up in both the drop in OI, as well as the drop in commercial shorts in the COT report. From the COT perspective, it is hard to say if we are near a low or not. There was no daily reversal candle print on Friday.

This week, silver plunged -0.84 [-4.54%] to 17.68 on very heavy volume. The bearish engulfing candle was a reasonably strong bearish reversal (44%), forecaster dropped, but remains in an uptrend. Silver remains is in an uptrend in the weekly and monthly timeframes.

COMEX SI open interest fell -1.8K contracts on Friday, and rose +6.3K contracts this week. That was 13 days of global annual production in new paper added to the market. Current open interest for SI: 97% of global annual production, up +3.65% this week.

Silver commercial net fell -3.4K contracts, which was +7.3K new shorts and +3.9K new longs. Silver managed money net rose +611 contracts, which was +2.4K new shorts, and +3.0K new longs.

The gold/silver ratio climbed +1.55 to 95.75. That’s bearish.

Commercial shorts have continued to pile into silver, even as prices are falling. Candle print on Friday was a bearish continuation. No bullish reversal yet for silver either.

GDX plunged -5.42% on very heavy volume, and GDXJ plunged -3.69% on moderately heavy volume. XAU plunged -4.35%, the long black candle was a possible bearish reversal (37%), forecaster dropped, moving deeper into its downtrend. XAU is in a downtrend in both the daily and weekly timeframes.

The GDX:gold ratio dropped -2.60%, and the GDXJ:GDX ratio climbed +1.80%. That’s bearish.

While there definitely was dip-buying on Friday, it wasn’t enough to result in a bullish candle print, or a reversal on the daily forecaster. That’s what the models say anyway.

Platinum fell -35.92 [-4.29%], and palladium rose +3.75 [+0.19%]. Platinum appears to have reversed course – it is in a downtrend in both daily and weekly timeframes. Palladium continues to chop sideways.

Copper shot up +0.10 [+4.10%] to 2.54 on extremely heavy volume. The opening white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. Copper is in an uptrend in all three timeframes.

Copper had a good week this week, running into resistance at the 200 MA. It has retraced most of the losses from the March crash. Copper is supporting an overall risk-on sentiment.

The buck plunged -1.43 [-1.45%] to 96.89 on very heavy volume. The opening black marubozu candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. The buck is in a downtrend in all three timeframes.

Major currency moves included: CAD [+2.82%], EUR [+1.64%], GBP [+2.72%], JPY [-1.76%], AUD [+4.69%].

The buck fell 4 days out of 5 this week, managing to bounce back slightly on Friday. The hammer candle print on Friday was reasonably bullish (39%), but – so far, there is no reversal yet for the buck. The drop in the currency doesn’t seem to have helped gold in the slightest – this tells us that gold in other currencies has sold off really hard. Think: AUD, which staged a massive rally this week. No fun at all if you hold gold down under.

Crude rallied +3.65 [+10.29%] to 39.11 on moderate volume. The long white candle was a bullish continuation, and forecaster climbed, moving higher into its uptrend. Crude is in an uptrend in all three timeframes.

EIA report: crude -2.1m, gasoline +2.8m, distillates +9.9m.

Crude continues to recover. The uptrend continues to be very strong.

SPX shot up +149.62 [+4.91%] to 3193.93 on very heavy volume. The opening white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. SPX remains in in an uptrend in all three timeframes.

Energy [+13.56%] led, along with financials [+10.79%], while sickcare [+0.19%] and staples [+1.97%] did worst. This was a bullish sector map.

The VIX fell -2.99 to 24.52.

More than half of the gains in SPX this week came on Friday.

TLT plunged -4.57%. The opening black marubozu candle was a low-percentage bullish reversal (28%), forecaster dropped, dropping into a downtrend. TLT is in a downtrend in both the daily and weekly timeframes. The 30-Year yield rose +26.0 bp to +1.67%.

TY fell -1.30%. The confirmed bearish nr7 candle was a probable bearish reversal (51%), forecaster dropped, dropping into a downtrend. TY is in a downtrend in all three timeframes. The 10-Year yield rose +25.0 bp to +0.90%.

Looks like bonds have started to move sharply lower; I think that’s tied in with the dropping buck. Money is now starting to flee the US in earnest, back to its home across the pond in Europe, and to other risk-on locations.

JNK rallied +2.57%. The opening white marubozu candle was a reasonably strong bearish reversal (46%), forecaster climbed, moving higher into its uptrend. JNK is in an uptrend in the daily and weekly timeframes.

Crapppy debt continues to rally. It is now almost back to its 200 MA. Not sure why the candle code thinks this could be a bearish reversal, but there it is.

Physical Supply

The GLD ETF tonnage on hand climbed +4.97 tons, with 1128 tons remaining in inventory.

ETF Discount to NAV:
* CEF -1.32%
* PHYS -0.80%
* PSLV -2.06%
Bullion Vault Premiums:
* gold: +7.38
* silver: +0.08
Gold dealer big bar premiums:
* gold [1kg]: 1.60%
* silver [1000 oz]: 14.99%

Premiums at BV, discounts in the physical ETFs, and shortages in physical silver.

Grey Swans and Geopolitics

China & Decoupling: More articles this week – the headlines all suggest that decoupling with China is: “folly”, “expensive”, “an abyss”, “unrealistic”, comes at “significant cost”, and so on. You get the idea. Someone is putting a whole lot of effort behind shaping the narrative that decoupling is a dreadful idea. When all the different news organizations ended up saying roughly the same thing, all at the same time, you know there is a “conductor” in the background directing the orchestra.

Treatment: Lancet “HCQ Kills” study retracted due to fraud. Boulware’s HCQ-PEP is looking iffy now too. Raoult is suggesting the pandemic is subsiding – attenuating. What if it just went away on its own? It could happen.

Bailouts: No news.

Eurozone Breakup: On Hold. ECB printing 1.35 trillion. Corona virus relief: 750 billion. We must wait for August for that German constitutional court decision to take effect.

Hong Kong: Protesters in Hong Kong commemorated the Tienanmen massacre on Thursday this week; some estimates of deaths of unarmed students at Tienanmen reach 10,000. This year’s ceremony was – perhaps – the last such time this particular ceremony that will be tolerated by Beijing. It has already been forbidden in Macao.
https://hongkongfp.com/2020/06/04/thousands-of-hongkongers-defy-police-ban-to-commemorate-tiananmen-massacre-victims-at-victoria-park/

US-Iran: The US and Iran swapped prisoners this week. Trump suggested that this showed a deal with Iran was possible.

North Korea: complained this week about people (defectors from North Korea, now living in South Korea) that have been sending propaganda leaflets floated by balloons across the border. Language was colorful and enthusiastic. I’m guessing if you actually lived in North Korea, you probably wouldn’t be nearly as amused: Referring to the defectors as “mongrel dogs” and “human scum,” Kim Yo-jong said the propaganda bombardment could also force the North to completely withdraw from an industrial complex in Kaesong, just north of the DMZ, and to shut down a joint liaison office in the town.
https://www.theguardian.com/world/2020/jun/04/kim-yo-jong-warns-south-korea-to-tackle-evil-propaganda-balloons

Economic Reports

Fed Balance Sheet: headline 7165.2B, +67.9B (+0.95% w/w) (prior +0.85% w/w). Money printing is picking up; annual run rate is $3.5 trillion.

Yield Curve Inversion: the 1-10 spread rose +23 bp to +71 bp this week. 1Y: 0.19% (+2 bp), 10Y: 0.90% (+25 bp).

Nonfarm Payrolls: headline 132.9M, +2.5M (+1.89% m/m) (prior -15.86% m/m), avg hourly earnings: -0.29 (-0.97% m/m), manufacturing: +225K (+1.92% m/m) (prior -11.53% m/m), PTW/Only PTW Work Available: +146K (+17.32% m/m) (prior -89.53% m/m), PTW/Slack Work: 9.5M, -396K (-4.15% m/m). Looks like the bleeding has stopped.

Auto/Light Truck Sales: headline +28.55% m/m (prior -30.61% m/m) Auto Sales: +25.41% m/m (prior -45.63% m/m) Heavy Truck Sales: +5.58% m/m (prior -10.02% m/m). Strong rebound in auto sales – maybe recovered 40% of the pandemic losses.

Existing Home Sales: headline -21.71% m/m (prior -9.30% m/m), Mean Sale Price: +5.4K (+1.68% m/m), housing inventory: (-1.36% m/m), monthly home supply: 4.10, +0.70. Home sales continue to crater; inventory increased, mean sale price increased – but I suspect that was more about the buyers than anything else. Low end buyers are probably not able to get loans.

Summary

This week seemed to be about three things:
1) the ECB meeting, where they signed up to print 1.35 trillion Euros in total. This was just another step in Europe’s recovery, with the first step taken last week when France and Germany agreed to send a truckload of Euros to support Southern Europe.
2) The ongoing social unrest in the US
3) The surprising Nonfarm Payrolls report

All of that conspired to drive gold and bond prices lower, and risk asset prices higher. Money fled the US, to Europe, and other places.

Crude, crappy debt, equities and copper all did quite well. Will they continue to do well? That’s harder to know.

Next week we will find out if the massive PROTEST-1 outdoor SC2 trial will end up driving cases higher in the US. If it fails to do so, the reopening of America will almost certainly happen more rapidly than previously projected. The corona virus spell-of-doom will be broken. Presumably if SC2 doesn’t infect protesters and looters, it won’t infect beach goers and saturday-afternoon strollers either.

An outside possibility I am now toying with: if SC2 does mostly disappear – as has been suggested by Dr Raoult over in France – the new normal will turn into the old normal. Is this really a thing? Maybe. More interestingly, I don’t think anyone is actually prepared to see that particular outcome.

What will those vaccine stocks do if that happens? And airlines? And hotels?

Trump, much ridiculed for suggesting it could just all disappear by summer, would end up being right after all.

Wouldn’t that be one for the ages?

That outcome is probably gold-negative. At least initially anyway. Assuming it happens at all.

Regardless, I think reopening will happen faster than we had previously anticipated because of the protests. It will be tough for the authorities to justify keeping people indoors when normal folks see people protesting (and looting) every single night on TV, with apparent approval from Team Blue, which is mostly in charge in these areas.

The visuals of the protests are very compelling. They say, without question, “it is fine to go out in groups again.” Without these visuals, it may well have taken months, if not years, for people to be comfortable with this again.

You just never know how things will turn out.

  • Sat, Jun 06, 2020 - 03:01pm

    #2
    jmone

    jmone

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    PM Weekly Market Commentary – 06/05/2020

Oz Update:  The week in Oz was similar than the US but only magnified by the roll on of the AUD.  Both the ASX200 and the AUD was up around 4% (and we were closed by the time the US market took off on Friday so ASX Futures are up strongly for a Monday Open).

Australia is in recession for the first time in 29 years.

Those that I speak to are in two camps.  The “ordinary” folk that think this is all great and the good times are back…. and those in senior company positions that are in disbelief of the bounce, it’s disconnection for the fundamentals that they are seeing, and are scared of where the economy will be over the next year.

If last week looked great for the ASX and AUD & bad for PM’s, here is the Monthly Chart.  The rally in the ASX and AUD started around the 18th then really took off around the 25th May driving gold at much the same rate as it was stead in USD.  End of the week saw bigger drops as gold in USD then sold off making it worse.

The standout for us was Silver over this time thanks to the big bounce earlier in the month.

There continues to be no physical supply issues with either Gold or Silver in most formats and the margins have fallen back to pre-pandemic levels.

  • Sat, Jun 06, 2020 - 03:21pm

    #3
    jmone

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    PM Weekly Market Commentary – 06/05/2020

To me, it does not look like COVID-19 is just going to “go away” in the US any time soon, but I don’t think that matters in the psyche for most people.  As long as it remains at or below the current levels in the US I think it will just be seen as acceptable.

Their might be a slight down trend in new cases over the last two months but it is pretty flat (20K ish per day).  The good news is the heath system is getting better at treating those with the disease and the death rate is steadily dropping and down to around 1K ish per day.

In comparison to other leading causes of death in the US, COVID-19 (at around 20K cases / 1K deaths per day) has it solidly in top 3:

– Heart Disease : 1,774 pd

– Cancer : 1,641 pd

– Accidents : 466 pd

– Influenza and Pneumonia : 153 pd

  • Sun, Jun 07, 2020 - 04:12am

    #4

    davefairtex

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    weakening virus?

My chart shows the improvement in deaths vs cases a bit more clearly because I ran it through an MA7.  The trend is pretty clear – it is just one new low after another.  “That’s a downtrend.”  903 per day right now, according to the MA7 anyway.

And we haven’t seen any substantial jump (yet) from the protests, which should have started to show up a few days back.

I think we’ve got partial and improving herd immunity, a weakening virus, and better treatments all happening at the same time.  Country is opening up, so theoretically that should have plunged the country into a state of massive increase in cases.  “Death Destinations.”  That didn’t happen.  How can that be?

After all, improving treatments wouldn’t stop cases from happening.

But – if cases don’t get noticed, because they are asymptomatic because of a weakening virus, that effect won’t show up until we do antibody testing that actually works.  Which we aren’t doing.  So my claim is, reopening the country did lead to a lot more infections, but the weakening virus meant a larger percentage of them were asymptomatic.  So they didn’t show up in the stats.

Its a theory anyway.

Thanks for the data about heart disease to put this into context.

Also – unrelated but important – “heard at king world news”: for every 1000 unemployed people, that results in 1 suicide, 30-50 divorces, and 2-3 opioid overdoses.

https://kingworldnews.com/rob-arnott-6-6-2020/

  • Sun, Jun 07, 2020 - 05:43am

    #5
    phusg

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    PM Weekly Market Commentary – 06/05/2020

I agree it will be really interesting to see the outcome of the massive PROTEST-1 outdoor SC2 trial. Maybe being outdoors is a bigger factor than maintaining distance and mask wearing. A sure bet is that we’ll all be heading indoors this winter (well maybe not Australians), so personally I feel virologists expectations of a second wave are well placed. Always good to question received wisdom though.

> deaths vs cases

Certainly looks to be improving and with good reason, but from everything I’ve read this is a pretty nasty disease and even the non-death cases take a big health hit from contraction.

> headlines all suggest that decoupling with China is: “folly”,

US media only then I think, didn’t catch any of this chatter in Europe. I just listened to this recommended podcast interview with Lyn Alden https://www.coindesk.com/why-a-strong-dollar-is-bad-for-the-us-and-bad-for-the-world which opened my eyes to the fact that having reserve currency is not necessarily all good for the US and also structurally makes decoupling difficult.

  • Mon, Jun 08, 2020 - 07:29am

    #6

    JAG

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    Crowd Psychology

An outside possibility I am now toying with: if SC2 does mostly disappear – as has been suggested by Dr Raoult over in France – the new normal will turn into the old normal. Is this really a thing? Maybe. More interestingly, I don’t think anyone is actually prepared to see that particular outcome.

Is that not what the stock market has been screaming the last month? If that outcome isn’t already priced in, it will be shortly.

And it’s not just the stock market. I went to the grocery story this weekend and started counting how many people were wearing masks in each aisle: excluding employees, it was less than 10 percent.

Before this pandemic got going I felt stupid to be wearing a mask in public, then everyone was wearing them, now I feel stupid again.

Crowd psychology is the most dominant human weakness. I’m going to be there to profit from this collective stupidity and I suspect the virus will profit from it too.

But if the virus doesn’t stage a significant comeback, how will the politicians justify more fiscal stimulus? That could be more lethal to the stock market than the second coming of the virus.

Politically speaking, if everything roughly stays the same after the elections, or the democrats sweep, then we get unlimited fiscal stimulus.

But if Biden get’s elected and the Republicans still have the Senate, fiscal stimulus is over no matter what happens with the virus and/or economy.

May you live in interesting times…

  • Mon, Jun 08, 2020 - 08:12am

    #7

    JAG

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    Speculation Apocalypse!

From Sentimentrader.com

The dumb money is going ballistic!

And, of course, they aren’t hedging their speculations with puts…

Geezus DF! I know this activity can keep going, especially coming out of a bear market, but GEEZUS!

If the VIX can get down to 20 or under in the next 2 weeks, I think I have to be a buyer of mid-term VIX call options (and/or selected put options) or I’m just a pussy, lol.

Is it “Sell in May and go away” or “Buy in June and you’re a buffoon”?

  • Mon, Jun 08, 2020 - 10:15am

    #8

    davefairtex

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    i dunno

JAG-

That’s pretty appalling, those calls.  The herd believes this pandemic game is over.  I agree with them.  Protests tell us this.  Media is no longer telling us we have to hide in the bunker to Save Grandma.

Anyone feeling played yet?

Friend of mine who didn’t do stocks is now asking me “what’s cheap to buy?”  I told him, its not like when there is a sale at Macy’s where they post the stuff that has a big discount on it.

But the recommendation I gave him, maybe 6 weeks ago?  Up 100%.

He works for an airline.  I suggested he could buy it.  That one is up 100% too.

Its wild that SPX – may – make new highs.

Before you jump in short, you might want to actually wait for the market to show signs of tipping over.

  • Tue, Jun 09, 2020 - 04:10am

    #9
    phusg

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    PM Weekly Market Commentary – 06/05/2020

I feel played more often than not (not really believing much in a true free will) but not so much with respect to the lockdown. I agree that in hindsight it was probably overdone. Even the Imperial College London that advised the UK’s lockdown and is now saying it saved millions of lives, admits that this doesn’t take into account the lives that the lockdown cost due to deteriated mental health etc. and also assumes that people wouldn’t have changed their behaviour of their own accord without an enforced lockdown.

But I don’t see anyone consciously looking to implement lockdown for their benefit, there were mainly losers. Do the susceptible elderly have that much political clout? I think the overreaction is most plausibly explained by fear of the unknown.

I think this take on the situation by Ben Hunt is about right:

We launched all of our warheads against ourselves in a massive overkill of a lockdown, where our domestic equivalent of a noncombatant Albania was hit just as hard as our domestic equivalent of a Soviet missile base, and now we’re done. Our arsenal is gone. There will never be another coordinated national effort to control the spread of Covid-19. Not with this President, at least.

Our leaders have botched this war, and we are defenseless against a still potent and now endemic enemy, left only with the deus ex machina hope of a truly effective vaccine.

Self Assured Destruction

If you read the comments you also understand where the author is coming from:

I personally know four people who have died from Covid-19 over the past month alone, including my best friend from childhood – 56 year old in excellent health. Like you, he was a Covid-19 denier … then his lungs filled up, threw off a clot, and he was dead of a stroke within 5 days of the first symptoms.

  • Wed, Jun 10, 2020 - 12:47am

    #10

    davefairtex

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    being played – a COVID denier?

COVID-deniers, huh? Some people really want the world to be divided neatly into “good people” and “stupid, evil people”, apparently. That’s repurposed climate change discussion suppression technique, meant to stifle discussion and erase nuance.

Clearly this virus exists, and it kills people. Duh. Most rational people agree with this statement. So no, not a COVID-denier.

And yet, I still feel played. Throughout this whole event.

First it wasn’t spread human-to-human (while China was covering it up). And then masks didn’t work (while China was busy buying up all the PPE). Then banning travel between countries was said to be racist (while China banned travel from Wuhan internally, but allowed their citizens to travel to – places like Italy and Spain, who paid the ultimate price). We were played (by WHO, and China) before it even got here.

Then, when it came to the US, we had to lock everyone at home, to “stop the spread”, to “flatten the curve”, and to “prevent hospital overload.”

Ok. We did that. Curve: flattened. Hospital overload: prevented.

But did the lockdowns end? They did not. The goalposts were moved. Now it was about eliminating the virus. (Good luck with that, with 2M cases active in the US; ship = sailed long ago). Why were the goalposts moved? Good question.

The Media. They were on a constant shaming campaign for anyone suggesting about getting back to a more normal life. If you were stuck at home, you probably watched a whole lot more TV. Cui Bono there, do you think?

So after China played us, then our own media played us some more, as did our politicians who “wanted to look strong” for their own reasons.

It was only when the protests appeared that the hypocrisy became utterly transparent. Going to the beach = killing Grandma. Going to protest = an essential activity.

In real life, of course, the virus doesn’t care. But in the media, and by politicians, a distinction is made. Cui bono, again? Viewers and voters supported the protest, so it suddenly became “essential.”

So…played. Constantly. You may be used to it, but it annoys me a great deal. Especially when it ends up destroying real jobs (21 million), causing suicide (1:1000), causing divorce (35-40:1000), and drug overdoses (2-3:1000).

And now, because I dislike both hypocrisy and being played, apparently I’m now labeled a COVID-denier.

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