MACRO MORNING NOTE MAY 16, 2017
SPX Flat, DXY Down, WTI Up
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland.
Global stocks and US futures are overall mixed this morning. Overnight WaPo broke a story with anonymous sources who said President Trump revealed classified information to Russia’s top diplomat. We can not confirm this here in Baltimore, Maryland, but do have to add WaPo and the CIA have a $600 million dollar contract for ‘web services’. The main event this morning is in forex, where the dollar is due for significant downside probing into the midpoint of the 98 handle. The overall reflation trade is reversing with the growing uncertainties around Trump’s ability to complete infrastructure spending and tax cuts. Precious metals have finally reached a floor after the relentless selling in the past month. Base metals copper and iron ore have been unresponsive to the recent OPEC ramp in oil to the 49 handle. Major commodity indexes including <CRB>, <GSG>, and <LLOYDS/BDI> print in a deflationary trend besides the recent WTI ramp. This leaves us to believe the short cover in oil is temporary and the overall picture is down. Prepare for 4:30 est. API report after-hours.
US event calendar
- 8:30am: Housing Starts, est. 1.26m, prior 1.22m; MoM, est. 3.7%, prior -6.8%
- 8:30am: Building Permits, est. 1.27m, prior 1.26m; MoM, est. 0.24%, prior 3.6%
- 9:15am: Industrial Production MoM, est. 0.4%, prior 0.5%; Capacity Utilization, est. 76.3%, prior 76.1%
- 9:15am: Manufacturing (SIC) Production, est. 0.4%, prior -0.4%
- 10am: MBA Mortgage Foreclosures, prior 1.53%; Mortgage Delinquencies, prior 4.8%
Starting in Forex, Alastair Williamson is projecting major downside in the dollar.
The theme in forex is dollar demand is weakening as US reflation trade falters.
In the forex patch, DXY probes the 98 midpoint with significant downside as long as price <99.26. Projections on the dollar downside is a S1 94.78. EUR/USD probes higher into the midpoint of the 1.10 handle and a flat GBP/USD in the 1.28 level. USD/JPY is stabilized in the high 113 level despite dollar downside.
In the US, the reflation trade is faltering with a dollar negatively diverging SPX500, oil, and yields. In China HKG33 ramps with yields as SCHOMP negatively diverges with CNY/USD. Over in Europe, equity indexes, EUR/USD, and yields are al turning up in recent sessions. Lastly in Japan, the Nikkie225 and USD/JPY continue to print in resistance.
Six major commodity indexes print in deflationary trajectories mainly due to a deleveraging seen in China.
In the commodity patch, Oil probes higher into the 49 handle following reports of OPEC proposal to extend the production cuts. Our anaylst Alastair Williamson says, “if the production cuts were working there would be no need for an extension. The oil market is far from a rebalance”. Precious metals /GC and /SI bid on the backs of a declining dollar. Base metals including copper and iron ore are not responding to OPEC’s oil ramp. Major commodity indexes print in a deflationary trajectory where we think this latest commodity counter trend will be short lived. This is mainly due to China’s slowdown, credit binge dwindling, commodity unwinds, and shadow bank crack down.
‘Soft’ Data Vs. ‘Hard’ Data
US Macro crashes to a 12 month low v. SPX500. Warning.
Nasdaq Composite ignoring 2017 EPS Expectations. We call this a bubble driven by Federal Reserve. This won’t end well..
All eyes on China. Here are four red flags:
The most important chart for 2017 just went negative. Expect slower global growth and lower commodity prices on the horizon.
WTI monthly/weekly R1 55 overhead supply with completed pivot 44.81 reversion. OPEC short cover attempting counter trend with 10sma 49.83 resistance. Heavy resistance here as auction is probing through the high volume node of the overall P-Shape Distribution. Oil needs a new narrative. Trend is top heavy because of distribution.
US10Y monthly/weekly R1 2.63 resistance with pivot reversion 2.13. Counter trend tagging resistance on monthly 100sma 2.45.
US Dollar monthly/weekly Pivot 99.26 unlocking overhead supply with weekly 50sma downside break. Next round of overhead is unlocking with S1 94.78 projections.
SPX500 monthly/weekly R2 2398
CRB Index monthly/weekly pivot support 181 handle with counter trend forced via Oil.