MACRO MORNING NOTE MAY 17, 2017
SPX Down, DXY Flat, WTI Down
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland.
Asia and European stocks declined overnight following the worst US sell off in eight months. As you know, Washington, D.C. has kicked off a major political war with the deep state launching an offensive against the Trump Administration. This is not a drill, the coordinated efforts via the deep state have intentions to impeach President Trump. This week marks a pivotal time in America’s Fourth Turning as political crisis in Washington, D.C. is set to deepen even further. Overnight, Reuters launched new market generated information alleging that Trump’s campaign members communicated with Russians on at least 18 occasions.This led to even more risk off in global stocks including US Futures. The low volatility bubble of complacency is starting to unwind with VIX massive +46% surge prior session. This is bad news for volatility neutral or low vol funds such as directional systematic funds/CTAs and risk-parity. The reflation trade has died with UST10Y 2.208 and the US Dollar printing at 97.58. This is an indication that Trump has ran out of political capital for future legislation such as fiscal stimulus.
Volatility remains suppressed over the years sort of like a compressed spring. On the other hand, low volatility strategy <XIV> is in a bubble.
Three bubbles to watch: US Retail, US Biotech, and Low Volatility
Overnight, Asia and Europe wanted nothing to do with the US reflation trade, along with SPX500 and Oil. More market generated information attacking the Trump Admin sent the market lower. In the 7-7:30am est. hour, plunge protection team has stepped in.
The reflation trade has declined ever since the March 2017 rate hike. Trump’s recent mishaps have merely been an accelerator, but did not start the trend. In fact, the reflation trade has been primarily in a state or resistance in the 2017 time period. With the rapid decline as of recent, the market doubts Trump will be able to pass through fiscal stimulus legislation. Prepare for turbulence.
In Europe, Japan, and US, there is a systemic risk off event with regional yields declining as the market rushes into bonds with equity outflows.
9th largest economy in the world (Brazil) is now crashing amid political crisis
In currencies, the risk off event has spilled over into the dollar probing the 97.50s. Meanwhile, the EUR/USD probes 1.11 handle. USD/JPY was been smacked on this risk off event to the 110 handle. GBP/USD surges to 1.30 level in a delayed fashion. Overall idea to understand is outflows in the dollar amid a political crisis in D.C. unfolding.
In the commodity patch, WTI has declined to the lower 48 handle this morning -100bps. Base metal such as copper -200bps to the 2.49 level. Gold and silver have been the big winners in the DC political crisis besides bonds. Commodity index <CRB> continues to reject the daily 200sma. Soft Agri continues to print in deflationary trajectories. Overall commodity space is teeter tottering in deflationary headwinds following months of stress in China.
Major commodity indexes print in resistance. Look to China for answers.
WTI monthly/weekly 55 resistance with pivot 44.81 reversion complete. Major line in stand this week is the weekly 50sma 48.86
UST10Y monthly/weekly R1 2.63 with pivot 2.13 reversion
DXY monthly/weekly unlocking overhead supply from pivot 99.26 with S1 94.78 downside projection
SPX500 monthly/weekly R2 2398 overhead resistance is unlocking with downside projection R1 2287
CRB monthly/weekly pivot 181 indecision neutral but bearish.