Gold holds gains after bond melt-up, European stocks bounce
Remember when 3.25% on the 10yr meant the bond rally was over and yields would break out?
Gold at $1500
Gold’s advance looks unstoppable, with prices
striking through the big $1500 level as flagged in yesterday morning’s strategy
note. The cue was a major melt-up in bonds. $1525-50 looks to be a big
area to overcome with a tonne of horizontal past support around this
region as the market seeks to overcome the April 2013 crash. On the 1-hour chart we’ve got a nice bullish-looking flag
We’re seeing steep declines in US yields, which is providing the fuel for this rally. The US 10yr found 1.59% but has since pared the decline to move back to 1.7%. We’re seeing aggressive declines in bond yields and inversion along the curve. In particular the inversion between 3mo and 10yr Treasury notes stretched to the widest since 2007 yesterday. Although the bond rally lost some momentum later in the session, this recession indicator is flashing red. Real yields are almost negative with the 10yr TIPS as low as 0.9%. As noted before, a return to negative real US yields would be incredibly bullish for gold. We don’t yet know however whether the bond rally has enough legs to continue pushing down on yields, but in spite of the cooling yesterday this looks one-way for now.
US equities recovered from a weaker open to end the day
essentially flat. The S&P 500 closed marginally higher, rallying 50 points
from its lows of the day, while the Dow was marginally in the red as it moved
about 500 higher from its lows. Futures now indicate a positive start. Again,
though there is reason for bulls to be nervous about this stabilisation – for
it’s nothing more than that for the time being. The failure to again breach the
2890 level is a concern. Trend support through the Dec 2018 lows and Jun ‘19
swing low now appears to acting as
a resistance band above in the 2890-2900 region.
European shares bounced on the open with the FTSE 100
advancing towards the 7240 level. The DAX has broken out through the important
11,740 level – look for a close above this today to give a bullish signal.
Whilst we’re in the green, the nerves remain on edge.
Overnight the PBOC fixed the yuan slightly firmer than
expected but it was above 7. USDCNH continues to trade on the 7 handle,
around 7.07 at send time.
Chinese data overnight has also eased some concerns with exports rising 3.3% in July, beating expectations for a 2% drop. Imports were down 5.3%, but this was compared with estimates for a decline of more than 8%. Meanwhile Japan has cooled tensions with South Korea over trade after approving a shipment of chip materials to the country.
markets continue to suffer from weakening expectations for global growth. Brent
has sunk below $56 but since recovered to around $57.80. A retest of the $50
looks possible. For bulls we need to look around the $59.50 level, the 61.8%
retracement of the rally off the Dec 18 lows through to the 2019 highs. This
level provided plenty of support through June and will be an important test.
For WTI we’re looking at whether $54.50 can be retaken, the 50% retracement of
its rally over that period.
EURUSD has stalled around the 1.12 level and cannot seem to break its 50% resistance. Meanwhile the pound is stuck in a very narrow range against the dollar and is holding right in the middle of that range. GBPUSD has barely budged all month – expect that change once the politicians come back from their August sabbaticals. US secretary of state Mike Pompeo says the US is ready ‘pen in hand’ to do a trade deal with Britain. This will only embolden the no-dealers.