MACRO MORNING NOTE October 02, 2017
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland.
Global stock markets advance overnight with holiday sessions in China, South Korea, India, and Hong Kong. Market movers this morning includes: Las Vegas mass-shooting, Catalan vote, and UK manufacturing boost.
S&P futures are slight higher, rising +12bps with a dollar at 93.55 and UST10Y 2.340. Over 50 are dead and 200 wounded in Las Vegas, Nevada, as a machine gun sniper mowed down a country concert. The gunman fired from the 32nd floor of a hotel making this incident the deadly mass shooting ever in the United States. Casino stocks premarket are in rough state despite S&P futures slightly higher.
The most important political event was in Spain’s worst constitutional crisis in years following the police state’s crack down on Catalonian voters. On Sunday’s Catalan independence referendum over 89% voted to breakaway from Spain. The IBEX is down over 1% and the EUR/USD prints lower -53bps in the midpoint of the 1.17 handle. Despite the Spanish political turmoil and Spanish bank stocks declining; everywhere else in the region saw an upbeat mood in stocks.
“Another week, a fresh wave of politics driving currency markets. Noise around Catalan independence is likely to keep the euro on the back foot and risks fueling a deeper technical correction. But the fundamental fallout may be limited,” said Viraj Patel, foreign exchange strategist at Rabobank, in a note.
The U.K’s mfg sector continued to print postive in September, but at a slower pace than in August. The PMI came in at 55.9, down from 56.7 in August missing forecasts of 56.4.
Over to Asia, where the Nikkei225 is slightly higher on weaker Yen; holiday in China, South Korea, India, and Hong Kong. Australia’s ASX200 +90bps was the powerhouse overnight with a lower AUD/USD -20bps.
In Japan, the Nikkei225 is slightly higher thanks to a lower Yen against the dollar. Abe’s Approval Rating Slips Below Disapproval says NHK Survey.
“Market sentiment has been positive for a reasonable amount of time and markets are moving on economic outlook and earnings growth,” said Adrian Vance, an investment adviser at Forsyth Barr in New Zealand.
Stock markets in Asia are likely to be suppressed until after the 19th Congressional Communist Party’s meeting in mid-October. As well as any-type of NOKO response by the United States—if any.
In commodities, price action of oil has been horrendous -2% to the midpoint of the 50 handle. Oil has advanced more than 25% since June lows and with today’s action could signal the rally is nearing an end. Precious metals including gold and silver are lower this morning following slightly higher dollar and risk on sentiment globally despite closed Asian markets, Catalan vote, and US mass shooting. Copper is weak sustaining the 2.95 handle rejecting the psychological level of 3. Base metals and precious metals as a whole have stalled out on weekly timeframes according to GSCI indexes.
Looking ahead today:
- 9:45am: Markit US Manufacturing PMI, est. 53, prior 53
- 10am: ISM Manufacturing, est. 58, prior 58.8; Prices Paid, est. 63.5, prior 62; New Orders, prior 60.3; Employment, prior 59.9
- 10am: Construction Spending MoM, est. 0.4%, prior -0.6%
- 2pm: Fed’s Kaplan Speaks in El Paso
Global markets are indicating Dow Asia is showing the first signs of stress after 1.5-year linear advance forced via central bank intervention.
Rotation out of consumer staples, real estate, and utilities…
As the chart below shows, the copper/CRB ratio has risen strongly ahead of yield curve inversions in the last two cycles. The copper/CRB ratio is valuable because copper is a cyclically sensitive commodity, and the ratio filters out the noise from changes in overall commodity prices.
The analysis of sector and industry rotation confirms the thesis of a late cycle rotation. The Relative Rotation Graph (RRG) is a way of depicting the changes in leadership in different groups, such as sectors, countries or regions, or market factors. The charts are organized into four quadrants. The typical group rotation pattern occurs in a clockwise fashion. Leading groups (top right) deteriorate to weakening groups (bottom right), which then rotates to lagging groups (bottom left), which changes to improving groups (top left), and finally completes the cycle by improving to leading groups (top right) again. The latest RRG chart of the US market shows leadership by late cycle inflation hedge groups such as energy, mining, and gold stocks.
The same pattern of inflation hedge leadership can also be found in Europe. While US technology has revived and revised into the top right leadership quadrant, European technology stocks have weakened, which makes the tech rally suspect.
What reflation looks like…
Reflation heating up with S&P futures propped up. Meanwhile, WTI continues it’s collapse…
Over in Europe, 10Y bond yields are lower with equity markets higher. EUR/USD lower on Catalan vote.
UST10Y monthly/weekly 2.313 10sma (monthly) upside break signals that an imbalance could be triggered with 2.641 ceiling.. For this to happen, price needs a sustain break over 2.313…
US Dollar monthly/weekly sustains above 92.19-92.80 area of support. As long as that support holds, there could be a countertrend 94.78 level.