MACRO MORNING NOTE APRIL 13, 2017
SPX Down, DXY Down, WTI Up
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland.
Global equities are mixed this morning follow another death blow to the reflation trade. Prior session, Trump was quoted in a WSJ interview of continuing low interest rates and recognized the strong dollar issue. Immediately a liquidation in the dollar occurred to the low 100 handle, as well as UST 10Y tagging 2.225. SBA’s Research Desk has been clear of a monthly pivot reversion in the UST10Y to the 2.13. It’s obvious the reflation trade is suffering, which we believe it’s a glimpse of the illusion fading leading to a disappointment phase. Continuing in to the latter half of the holiday week, the mainstream excuse for markets in decline is liquidity. But frankly, it’s due to central bank driven markets forcing artificial calm and complacent animal spirits amid deteriorating economic datasets and geopolitical turmoil surging.
Overnight, recap of Chinese trade data:
Chinese Trade Balance (USD)(Mar) 23.9B vs. Exp. 12.5B (Prey. -9.15B).
- Exports (USD)(Mar) Y/Y 16.4% vs. Exp. 4.3% (Prey. -1.3%)
- Imports (USD)(Mar) Y/Y 20.3% vs. Exp. 15.5% (Prey. 38.1%)
China Trade Balance (CNY)(Q1) 455b1n.
- Exports (CNY)(Q1) Y/Y 14.80%.
- Imports (CNY)(Q1) Y/Y 31.10%.
Geopolitical tensions are keeping a firm lid on US real yields, and a firm bid under the yen. If all I do is eye-ball relative real yields in the morning, I see no reason for USD/JPY to stop this side of 108. 2.29% this morning on nominal US 10s sees them below their recent range and real yields are 37bp now. Only a fall in US nominal yields to 1bp is avoiding the relative picture being even uglier but that just highlights the BOJs impotence in the face of lower global (US) yields. (SOCGEN)
No support for USD/JPY this side of 108
Latest Blog Entry titled: “The Fed Is Once Again Making A Policy Error”
via Kevin Muir via The Macro Tourist blog
Heck, even the Fed’s own GDP modeling tool “GDP Now” has been trending lower over the past month.
It is now predicting a mere 0.6% growth rate for the 1st quarter.
And it’s easy to see why. Loan growth is rolling over. I found this great chart on Twitter from HansMrkts:
Fed’s Kaplan Warns Trump “US Too Levered To Use Debt For Growth”
- *FED’S KAPLAN SEES U.S. GDP GROWTH IN EXCESS OF 2% IN 2017
- *FED’S KAPLAN: UNEMPLOYMENT RATE CAN GO LOWER THAN 4.5%
- *FED’S KAPLAN: LABOR MARKET GENERALLY IS GETTING TIGHTER
- *KAPLAN: ECONOMY NOT RUNNING AWAY, FED CAN AFFORD TO BE GRADUAL
- *KAPLAN: U.S. CONSUMER PROVIDING GOOD UNDERPINNING FOR ECONOMY
March 2017 EPS Estimates are extremely wide verse SPX500 fair market value
SPX500 EPS <100 for 9 quarters
The big problem with these cyclical upturns (depression cycle, not business cycle) is these positive interpretations. It will likely end up being hugely counterproductive (if it continues for long enough) in the same way as 2013-14 was attributed to QE3 and the belief that recovery was at that time not just possible but even likely (it’s amazing in review how in late 2014 the Federal Reserve was more concerned about “overheating” and how that view pervaded, uncritically, the whole mainstream description of what was going on). With that conventional perspective, there was and will likely be far less urgency to do what is necessary, even to (honestly) examine what it is that might be causing this sustained misery because there are seemingly plausible conditions (positive numbers) that suggest an end to the misery finally at hand. The economy ends up like a dog chasing its tail.
Overnight, we stress caution as Asian and EU traders wanted nothing to do with US reflation trade and SPX500. Usually tends to be a warning for US cash unless a narrative can be spun.
Larger timeframe view of the US reflation trade, which has never traded the same since March’s rate hike and Trump’s failed healthcare bill. Easily explained, the reflation trade is being ratcheted down.
This week’s trend in US reflation trade is clearly in a downward trajectory. WTI positively diverges on geopolitical tensions.
The ratcheting down has been a global phenomena spreading to Japan. Nikkei225 index and USD/JPY continue the downward trajectory.
Over of the same in Europe, with regional gov’t yields ratcheting down and regional equities following.
SPX500 monthly/weekly R1 2398 rejection with 3 candle setup bearish pending. Downside projections R1 2287.
DXY monthly/weekly R1 103.74 bracket with pivot 99.26 support. New market generated information of Trump bashing dollar leads us to believe a downside imbalance nears. Wait for bracket to mature.
UST10Y monthly/weekly R1 2.63 with pivot 2.13 reversion in process.
WTI monthly/weekly R1 55 resistance with pivot support 44.81. Geopolitical turmoil stimulating price action.
SBA’s Research Desk Convictions