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Dollar Treads Water as 10-year Yield Knocks on 2.40%

Cory
October 24, 2017
Comments (55)

I am on the road today to New Orleans but will have a couple more company updates posted throughout the day. In the meantime here is a global recap of some data and news released today. This is courtesy of Marc Chandler’s free blog.

I am looking forward to meeting a number of our listeners who will be down in New Orleans. If you are going to be in the area and have not reached out please email me and we can plan to have a beer and possibly watch a World Series game if you are into that. Fleck@kereport.com.

Click here to visit Marc’s website.

…

The US dollar is narrowly mixed in mostly uneventful turnover in the foreign exchange market.  There is a palpable sense of anticipation.  Anticipation for the ECB meeting on Thursday, which is expected to see a six or nine-month extension of asset purchases at a pace half of the current 60 bln a month.  Anticipation of the new Fed Chair, which President Trump says will be announced: “very, very soon.”  Anticipation of US tax reform proposal that will be released as soon as the budget is approved.  Anticipation of US corporate earnings, with FANG,shares off for the fifth session yesterday, the longest downdraft of the year.
The 10-year US yield is sitting just below the 2.40% level, which marks the upper end of the six-month trading range.  It has finished the North American session once above there since the end of Q1.  This has helped put a floor under the dollar against the yen.  When the yield faltered at the cap yesterday, the dollar pulled back to JPY113.25 and recovered in the afternoon session in Tokyo and through the European morning to return to the JPY113.75 area.     There is nearly a $1 bln option struck at JPY113.50 that expires today and a nearly $720 mln strike at JPY114.00 the will be cut.
The Nikkei extended its gains for a 16th consecutive session.  There have been two developments to note in Japan.  First, the flash manufacturing PMI for October eased to 52.5 from 52.9, though output remained strong.  The September reading was a four-month high.  Second, reports suggest that next week the BOJ may lower its forecast for (core) CPI for the current fiscal year.   Japan reports the September CPI figures at the end of the week.  The targeted core rate, which excludes fresh food, is expected to be steady 0.7%.  The BOJ’s current forecast is for it to reach 1.1% by the end of March 2018.
The eurozone reported its flash PMI readings.  They were mixed and gave a sense that the regional economy continues to expand at an above-trend clip but a slightly slower pace.  The composite slowed to 55.9 from 56.7, which is somewhat more than expected.  The weaker results were a function of unexpected slowing in the service sector, which is about the domestic economies, while the manufacturing sector, where exports are more significant, accelerated.  The services PMI slipped to 54.9 from 55.8, while the manufacturing PMI rose to 58.6 from 58.1.   Manufacturing employment was the highest on record (time series began 1997).
Separately, the ECB reported that banks mostly kept lending standards unchanged in Q3, while there was a pick-up in demand.  Credit standards for mortgages and consumer loans eased.    According to the report, the ECB’s asset purchases have had a positive impact on liquidity positions and market-financing conditions.  It has had a negative impact on net interest margins.   In the Q3 survey, banks said they used the liquidity created by asset purchases to mainly grant loans.   The bank survey underscores what the ECB will likely call the re-scaling of its asset purchases rather than tapering, which as it noted previously, implies an endpoint.
While the confrontation between Catalonia and Madrid continues, the market has moved on.  Spain’s 10-year bond yield is up 1.5 bp today, while German, French and Italian yields are up nearly four basis points.   Spain’s stock market is up about 0.25% while the Dow Jones Stoxx 60 is down marginally.   CaixaBank reported better than expected Q3 profit. Other Spanish banks will be reporting in the coming days.  CaixaBank said the Catalonia crisis had a moderately negative impact on deposits.  Deposits stabilized, reportedly, since CaixaBank was one of more than 1300 companies that shifted their legal headquarters out of Catalonia.
Turning to the Federal Reserve, the debate for many is over Powell vs. Taylor, to replace Yellen.  Even though President Trump has indicated he likes Yellen, and it is difficult to envision a more competent handling of tapering, rate hikes and now balance sheet reduction, so much of what he seems to be trying to do is reverse the general thrust of recent years.  Framing the issue now as Powell vs. Taylor may be a false choice in the sense that the White House may name both to the Chair and Vice Chair positions.
The North American session features the US preliminary PMI.  A similar pattern as seen in Europe is expected, with manufacturing faring better than services.   The highlights of the week come later. Weekly initial jobless claims made new cyclical lows last week and we’ll get the first look at Q3 GDP at the end of the week.
Discussion
55 Comments
    CFS
    Oct 24, 2017 24:55 AM

    Eric Sprott: Novo Resources, Garibaldi Resources, & Life Learned Lessons in Resources

    https://www.youtube.com/watch?v=w1L6n-hWOSk

      Excelsior
      Oct 24, 2017 24:52 AM

      I was watching that earlier and thought it was a good interview with Sprott.

    CFS
    Oct 24, 2017 24:03 AM

    l will be in Barcelona next week. It will be interesting to see first hand the level of dissent by the populace.

      Excelsior
      Oct 24, 2017 24:22 AM

      Traveling to Barcelona is on my bucket list, but I want to tie it in to a Triple-Header where I hit up Barcelona, then Valencia, and then Palma on the island of Mallorca.

      May you have safe travels.

      bonzo barzini
      Oct 24, 2017 24:23 PM

      I was in Barcelona in 1974 and 1978. Stayed at the Ritz for $28 a night. Xavier Cugat and Charro were there too. Now it costs 1800 euros for a night at the Ritz!!! Franco controlled hotel prices and protected tourists. Saw good flamenco dancing at a club a block off the Ramblas. Glad I went there in the 70’s. Be sure to eat fresas con nata at the Ritz.

        Dick Tracy
        Oct 24, 2017 24:05 PM

        Franco was also a dictator who didn’t allow dissent of his regime, if you criticized him openly, you were guaranteed to disappear shortly there after. I spent several months in Spain in the late sixties, I remember the oppression and the military police known as “The Guardia Civil”, that enforced it with machine guns. DT

    Wolfster
    Oct 24, 2017 24:03 AM

    Brokerage coverage of Excelsior
    http://www.pifinancialcorp.com/email/min-oct23-17.pdf

      Excelsior
      Oct 24, 2017 24:03 AM

      Nice and thorough review of MIN.

      Here’s a good Copper chart out today from Goldfinger:

      @Goldfinger – “Copper looking poised for next upside breakout: ”

      http://cdn.ceo.ca/1cuunu6-Copper_Daily_10.24.2017.png

        Wolfster
        Oct 24, 2017 24:40 PM

        Pieces falling into place too perfectly…… when’s the s### hit the fan and burst my bubble.

          Excelsior
          Oct 24, 2017 24:38 PM

          Wolfster – haha! Yes, that is how Mr. Market rolls…..

    spanky
    Oct 24, 2017 24:06 AM

    The yen reached a 40+year high in real purchasing power terms in 2016. Basically, the $crb index had never been lower in yen terms than in 2016–this despite the BoJ going on the greatest printing spree in world history, and taking it to “11” in 2013. On what planet does that make a lick of sense? It just goes to show you that merely printing money means absolutely nothing.

    spanky
    Oct 24, 2017 24:36 AM

    AXU still keeping up with the 2012 analog beautifully. Next stop is a waterfall to the 200 WMA. Then a suckers rally followed by a plunge below the 200 WMA.

    http://stockcharts.com/h-sc/ui?s=AXU&p=W&yr=10&mn=0&dy=0&id=p27181821252&a=552457991&listNum=1

    The yen is set up for a similar plunge, just like 2012 too.

      Excelsior
      Oct 24, 2017 24:50 AM

      Spanky – This is an interesting analog from those 2 different time periods, and if AXU waterfalls down, then I plan on buying the blazes out of it.

      Alexco is putting the strategy in place now, so that they can go back into production in the later part of next year 2018, so I expect the 2nd 1/2 of 2018 to be quite exciting for them. Until then they are still doing more exploration and driving in the mine access adits at Bermingham and Flame & Month, so they are in the calm before the storm.

      Honestly, I’d love a chance to accumulate a larger position at much lower levels before all of that kicks into high gear. If the waterfall never comes, then I’m fine with what I have and will just have to average up.

        Excelsior
        Oct 24, 2017 24:15 AM

        Alexco Resource: Further Silver Exploration Before Production In 2018 At Keno Hill

        ResourceCapitalAG – Video Interview

        https://www.youtube.com/watch?v=oxB3t0YbFQU

        spanky
        Oct 24, 2017 24:20 AM

        huh? You were just talking about selling and actually shorting miners!

        Please… AXU is headed to 1.08 and then sub 1.00. Could it bounce off the lower monthly BB for a month or two? absolutely. Wake me when it it bust $2.00. I think I will be asleep for many, many years.

          Excelsior
          Oct 24, 2017 24:29 AM

          No I said I considered lightening the load last week but was not selling and decided to ride out any pullback over the next 2 months. I was considering hedging by shorting the miners using and Inverse ETF like DUST, but not directly shorting any specific miner.

          Again, if there is a waterfall decline in AXU then I’ll wait for that pattern to exhaust itself and add like crazy down there. I still got in at $.70 and have scalped a few trades of 15-30% since then, so my cost basis is way below even $1. I’m not sweating it, but don’t like seeing pullbacks any more than the next guy.

          Asleep for many many years….. Incredibly unlikely. If you bothered to review any of the interviews or presentations linked above then you’d note they’ve renegotiated their streaming deal with Wheaton Precious Metals in a favorable light, have hit insane high grade at Bermingham and defined many more ounces at Flame & Moth, are sinking the adits into both deposits, have a mine plan that starts in 2018 and runs for years, and so by the end of 2018 AXU should be far above even their 2016 high. That isn’t many many years away.

          GH
          Oct 24, 2017 24:59 PM

          I said I was flat and considering shorting pm miners. That’s with ETFs, though. I stayed flat, watching for the next turn up.

    spanky
    Oct 24, 2017 24:44 AM

    Sometime between now and March ’18, the $indu:$gold ratio will hit 21. Gold isn’t going anywhere anytime soon.

    I imagine gold will bounce off the 50 WMA (maybe), but that bounce will be a few weeks at best before it heads to $1200 or sub $1200 into December FOMC. Book it.

      Excelsior
      Oct 24, 2017 24:47 AM

      Well we did have 3 days of silence at least 😉

      At least Spanky proclaimed last Friday that he thinks the metals are in a bull. (what a relief). haha!
      _____________________________________________________________________

      On October 20, 2017 at 7:20 am,
      spanky says:

      “I’m going silent for a while. I think the metals are in a bull, but the miners could tag their 600 DMA before this correction ends. Godspeed. Over and out.”

        spanky
        Oct 24, 2017 24:50 AM

        Gold may be, but it could be rangebound for years. And if you think it has the break $1070 or whatever before it confirms a bear, that’s quite a bit of play room.

          Excelsior
          Oct 24, 2017 24:56 AM

          It hasn’t made a lower low in over 2 years [yeah – real bearish trend in place] lol

          In contrast, Gold flirted with the 2016 high earlier this year (but admittedly didn’t break through on it’s first attempt). If Gold dips before the FOMC in December, as you mentioned, but then rallies to above the 2016 high in the first part of 2018, then all this doomleading will just be misleading.

          Let’s see how it goes as we’ll have to wait to see how deep the correction goes and how high the next leg higher goes. That is going to take months to play out, so daily harping on longer term charts is of little value Spanky.

        Excelsior
        Oct 24, 2017 24:51 AM

        Surely in 2 entire years, if the Bear market was really continuing from 2011 we would have taken out $1045.40. Capiche?

        Wake me up when Gold is below $1045.40. Until then it is just doomleading and we are not in a Bear market.

        The fact that it has been 2 years since the low in Gold is pretty obvious that we aren’t in Bear. The fact that in 2016 it took out prior peaks & troughs and a number of key moving average that it hadn’t for years during the 5 year bear is another clue that it wasn’t a counter-trend rally. A counter-trend rally or suckers rally would have turned down at the first layer of resistance, not blasted through 3-4 layers of resistance.

        That isn’t rocket science spanky….. it’s just TA 101.

    spanky
    Oct 24, 2017 24:54 AM

    This POS is oversold enough now that it might try a backtest of the neckline. I think it could drift a bit lower into next week though before any kind of weak bounce. Strong short on any strength.

    http://stockcharts.com/h-sc/ui?s=GDXJ&p=D&yr=1&mn=0&dy=0&id=p87642720726&a=552471158&listNum=1

    spanky
    Oct 24, 2017 24:22 PM

    This is some bull market action if I ever saw it. Wow, look at the smart money piling in.

    http://stockcharts.com/h-sc/ui?s=EXK&p=W&b=5&g=0&id=p65102826112&a=552478510&listNum=1

      Excelsior
      Oct 24, 2017 24:30 PM

      Who said anything about smart money piling in?

      Here’s what was said:

      “If Gold dips before the FOMC in December, as you mentioned, but then rallies to above the 2016 high in the first part of 2018, then all this doomleading will just be misleading.”

      “Let’s see how it goes as we’ll have to wait to see how deep the correction goes and how high the next leg higher goes. That is going to take months to play out, so daily harping on longer term charts is of little value Spanky.”

    spanky
    Oct 24, 2017 24:29 PM

    http://stockcharts.com/h-sc/ui?s=GDX&p=D&b=5&g=0&id=p02799390293&a=552480197&listNum=1

    spanky
    Oct 24, 2017 24:50 PM

    $sugar EXK/AG analog

    http://stockcharts.com/h-sc/ui?s=%24SUGAR&p=M&st=1990-01-24&en=2006-01-01&id=p42569994546&a=552483518&listNum=1

    http://stockcharts.com/h-sc/ui?s=EXK&p=M&b=5&g=0&id=p91748610320&a=552484000&listNum=1

    spanky
    Oct 24, 2017 24:28 PM

    IPT.V 9 months in a row down. That’s worse than 2008 or 2011-15 the bear market.

      Excelsior
      Oct 24, 2017 24:35 PM

      Yes, it is definitely starting to look more and more attractive to add some more IPT, but I’m building up some dry powder to use for any tax loss selling towards year end in a number of sectors.

      Spanky – Even with your bearish outlook, you’d have to admit that it is better to buy a highly torqued Silver producers like IPT (that will recover on any upturns) after a 9 month draw down, versus a 9 month rally. You know buy low, sell high?

      If an investor didn’t have any exposure to IPT, then they could target the end of this corrective leg (pre FOMC) to at least start an initial position. Even someone that was generally bearish, could see the value in scalping a low valuation in small Jr levered to any rise in the metals prices.

      Please let me know when you think we are going to get the bounce in December (likely pre FOMC) and I’ll buy more IPT at that level for a final tranche.

        Excelsior
        Oct 24, 2017 24:45 PM

        For clarity, the low will likely be pre-FOMC and then after the meeting gold may rally into year end and the Q1 run. So that is why I’m thinking of buying pre-FOMC.

        That is the basic plan for most of the silver/gold tax loss season purchasing, but if you see something technically that you feel may mark the bottom at that time, then I’d be open to the idea.

        Personally, I do think it makes sense to add one more tranche of IPT by year end and would like to buy it while it’s at the depths of the corrective move.

    Ozibatla
    Oct 25, 2017 25:59 AM

    It looks as though gold and silver want to roll over here. Dare I say it, Mr Maund might be on the money again! Only early in the days trading though.

    Wolfster
    Oct 25, 2017 25:16 AM

    Another piece falling into place for Excelsior???
    https://www.cnbc.com/2017/10/24/goldman-says-market-not-fully-appreciating-whats-sending-copper-higher-as-it-ups-forecast.html

    Excelsior
    Oct 25, 2017 25:12 AM

    Mining Stocks – Some Stories Are Working (Many Are Not)

    by FI FIGHTER on OCTOBER 23, 2017

    http://fifighter.com/mining-stocks/2017/10/mining-stocks-some-stories-are-working-many-are-not/#more-28518

    Excelsior
    Oct 25, 2017 25:46 AM

    Gold recovery expert Robert Garcia join Mexus
    October 16th, 2017

    To date, the recovery of gold via the Merrill Crowe system has not been adequate due to issues with the chemical analysis and flows. Mr. Robert Garcia is President of Auric Metallurgical Resources in Arizona and has extensive experience with mines and metallurgy. Mr. Garcia is evaluating and customizing the Merrill Crowe gold extraction plant which will help achieve maximum recovery.”

    Mr. Garcia commented, “After a couple of field trips observing and evaluating your projects in Mexico, they do appear to have significant potential to become profitable mining operations with growth potential once you have finished constructing the appropriate physical extraction plants and established the proper extraction protocols for the ore.”

    Mexus CEO Paul Thompson added, “Our output with the current Merrill Crowe recovery system isn’t sufficient given what we have on the heap leach pad.”

    “Bringing Mr. Garcia to assist will help us achieve full production at the Santa Elena mine. We are currently implementing his recommendations and expect completion in the very near future.”

    http://mexusgoldus.com/gold-recovery-expert-robert-garcia-join-mexus/