MACRO MORNING NOTE October 03, 2017
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland.
S&P futures are flat this morning with world stock markets mildly postive. The reflation trade has stalled overnight with dollar selling triggered in late Asia into early European session. UST yields continue multi-month highs with the UST10Y 2.36 signaling further upside of high probability. Asian markets are mute with China and South Korea on holiday. Investors continue to eye Spain’s political chaos with Moody’s now warning about the country’s credit-worthiness.
US Event Calendar
- Wards Total Vehicle Sales, est. 17.2m, prior 16m; Domestic Vehicle Sales, est. 13m, prior 12.5m
Over to Asia, markets in South Korea and China remain closed due to public holidays. Japan’s Nikkei225 climbed +105bps following a weaker Yen. Hong Kong’s Hang Seng resumed trading after Monday closure +230bps. Singapore’s Straight Times index was down -52bps, while India’s Nifty50 advanced +70bps. The stabilization put via China’s PBOC will continue through the 19th Communist Meeting this month. We would expect a flareup in North Korean instability after the meeting.
In Australia, the ASX200 closed lower -49bps with the AUD/USD recovering in the .7811 level. The RBA left its cash rate at 150bps unchanged for the 14 month straight. RBA Governor Philip Lowe said in a statement that the central bank expects economic growth Down Under to pick up in the future. He said, “The Australian economy expanded by 0.8 percent in the June quarter. This outcome and other recent data are consistent with the Bank’s expectation that growth in the Australian economy will gradually pick up over the coming year.”
In currencies, the dollar peaked to August levels in the 93.92 range, but as the European session came around sellers were triggered. On a high timeframe, the dollar auction is attempting a reversal in a period where de-dollarization is exploding globally. At the same time, the events in Catalonia, emerging market risks, and snap election uncertainties in Japan have induced buyers. If 92.80 is held, then the probability for further upside is likely into the 94-95 handle, but if the 92.80 is violated, then a bee-line to 87.50 will be seen.
In commodities, the unwind in the long crude trade continued overnight. The +25% advancement since late June has been one jaw bone higher after another. We tend to think the high volume node 42-50 will rotate more as the area matures forcing compression enabling for the next big move. Precious metals continue selling into the 4th week as summer’s upward move has retraced sizably. Industrial metals continue to stall for the 6th week with only a slight retracement from summer’s advancement. API data will print 4:30pm est.
Over to Europe, where stock markets are mixed as Spain’s IBEX35 remains under pressure on Catalonia concerns. Moody’s is out with a warning overnight hinting at credit worthiness of the country is deteriorating. The massive political change in Spain is in a region that accounts for more than 20% of the country’s overall GDP. UK stocks are flat following disappointing PMI data for construction (48.1 from 51.1 m/m).
Stress originates in Asia with Dow Global stalled at R3
SPY ETF Industries Relative Rotation Graph highlights the consumer is now lagging
Rotations out of consumer staples, real estate, and utilities.
In Asia, Australia and Singapore lag
In Europe, the IBEX35 lags
How long will the US reflation trade last?
Short term basis, US reflation trade is stalling with WTI leading the charge lower…
GSCI Precious Metals, Industrial Metals, and Energy are stalling on a weekly basis
US Dollar monthly/weekly attempts a counter trend in a period of de-dollarization. If the 92.87 200sma weekly holds, then upside is limited to 94-95. If 92.87 200sma weekly fails, then the downtrend will continue with downside projection of 87.50.
UST10Y monthly/weekly above 10sma monthly 3.314, as long as this level is maintained is there another mini bond tantrum about to spark? All it takes is a geopolitical instability to fling the market back into bonds….