MACRO MORNING NOTE October 10, 2017

SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland. 

On a large monthly timeframe, Dow Asia and Europe continue to show signs of stress. Dow Global has tagged a R3 resistance, which could highlight a possible exhaustion. S&P futures +16bps following a WTI surge in the European cash session.

Today’s main event will be the Catalan parliament meeting at noon New York time. Regional lawmakers are expected to debut the outcome of the Oct 01 referendum that has been ruled illegal by Spain’s courts. In response, Spain’s IBEX 35 -100bps, but surprisingly the EUR/USD +31bps to 1.17760 level. The diplomatic standoff between the United States and Turkey continues as tensions increase. Turkish markets recovered some after a selloff in the Lira and regional stock markets. Weakness in the dollar continues carried over from late last week following concerns that Trump’s tax reform is once again dead following the Coker and Paul Ryan disagreement. Regional stock markets in Europe are mixed ahead of Catalan’s noon meeting. Over in Asia, regional stock markets are higher with holiday session in Japan and South Korea coming to an end.

Starting in Asia, the MSCI Asia Pacific Index advanced +70bps. Japan’s Nikkei225 advanced +63bps with a strong Yen. Revelations from Japan’s Kobe Steel LTD. of staff manipulating data related to steel quality sent equity of the company plunging -22%. This is yet another company in Japan with another major scandal in 2017. Mainland China returned from a week holiday session on Monday with regional stock markets advancing, along with Gov’t yields and CNY/USD. Overnight, China said it will alter GDP calculations to boost Q3 data– how timely considering this is before the 19th Communist Congressional meeting. The meeting is a twice a decade power transition in China with leaders planning 5-10 years out. We expect volatility in the region to be limited until after the smooth transition. On a side note, new leadership is going after the petro-dollar…..

In Europe, data from the U.K. showed manufacturing production surprised +.4 percent gain in August, but the deficit in goods and services climbed $5.6 billion pounds during the month. Sterling’s reaction was a +33bps pop to the high point of the 1.31 handle. All eyes today on Catalan’s meeting where more market generated information about the independence is expected. Before the meeting, Spain’s IBEX35 -100bps with a higher EUR/USD.

“We have not witnessed any relevant statement or signal by the separatists that would hint at a change of strategy ahead of today’s discussion in the Catalonian parliament,” economists at Barclays wrote.

“Consequently, at this point, it seems likely that Catalan President Carles Puigdemont remains on track to announce a unilateral declaration of independence as early as today.”

US Calendar 

  • 10am: Fed’s Kashkari Speaks at Regional Economic Conference
  • 8pm: Fed’s Kaplan Speaks at Stanford Institute
  • Oct. 10-Oct. 15: Annual Meetings of the IMF and the World Bank

In the US, the reflation trade continues to suffer with a lower dollar and UST10Y printing 2.360 fading last weeks 2.40 tag. WTI was used in the EU cash session to boost S&P futures, but we’ll see how long that prop will last ahead of political tension at Catalan’s meeting at noon.

Over in Europe, regional stock markets and yields along with EUR/USD advance,

In Japan, the Nikkei225 breaks from the USD/JPY follows JP10Y higher.

In China, regional stock markets surge with gov’t yields.

Stress originates from Asia and Europe on Dow Index (monthly). Dow Global tags R3…

Over in Europe, IBEX35 and FTMIB are laggard ahead of Catalan’s noon meeting.

GSCI Precious metals find support with Gold and Silver advancing on the session. GSCI Industrial metals continues to stall for the 6-7th week. GSCI Energy stalls for the second week.

WTI monthly/weekly compression continues a major move pending

SPX500 monthly/weekly nearing R3 2578.4

UST10Y monthly/weekly if >2.314 then setup for 2.641… If <2.314 then setup for 2.13

US Dollar monthly/weekly 92.94 200sma (weekly) line in the sand for directional imbalance hint. Period of de-dollarization and failure to pass through pre-economic fiscal stimulus via Trump is weighing on upside.