MACRO MORNING NOTE September 28, 2017

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

In a combination of Janet Yellen’s speech and President Trump’s tax plan the reflation trade has ignited this week. Oddly enough, the dollar fades the midpoint of the 93 handle, but the UST10Y prints in breakout territory at 2.337. S&P futures are mixed along with global stock markets. The mini bond rout is present in Europe, Japan, and the United States.

Starting in Asia, the U.S. Dollar fades, but bond yields advance on Trump tax plan, as Asia-Pacific stock markets fall. Markets are not convinced Congress can agree on any tax plan this year—time is running out. The healthcare bill failure was a real litmus test of Trump’s limited mobility. Markets are to brace for another rate hike in Dec’17 odds above 81%. Surprising the dollar has faded considering the reflation narratives starting back up again, perhaps it has to do with de-dollarization in Asia and other parts of the world. Dollar in the 93 handle has pressured emerging market currencies and bonds, helping to drive down the overall Asia-Pacific region stock markets. The Nikkei225 prints -27bps with a stronger Yen and JP10Y at .073. In China, the stabilization put is deteriorating leading up to the 19th Congressional Chinese Communist meeting in October. The Hang Seng is down -79bps along with a flat Shanghai Composite.

European stocks are mixed across the board, as European financials advance. Traders in the region are concerned about future rate hikes in the United States and the idea Trump’s tax plan will not pass this year. Swedish retailer H&M declines after disappointing earnings, but bank shares gain on bond yield increase. The CAC40 flat, DAX flat, and the UK100 -36bps. The EUR/USD bids at the high 1.17 handle, as the dollar fades despite the narrative of reflation trade revival. Oil and gas and financials were among advancing sectors in Europe this morning.

BBG Headlines:

  • Yellen’s inflation patience gives duration bulls more ammo.
  • Tudor veteran sees turbulent quarter as inflation hits bonds.
  • What Spain’s secession vote means for investors.
  • With Schaeuble out, who will be Germany’s next finance minister?
  • Does college basketball’s economy breed crooks?
  • Legal weed could be a windfall for McDonalds and Taco Bell.
  • Playboy founder Hugh Hefner dies at 91.

US Event Calendar

  • 8:30am: GDP Annualized QoQ, est. 3.0%, prior 3.0%; Personal Consumption, est. 3.3%, prior 3.3%
    • GDP Price Index, est. 1.0%, prior 1.0%; Core PCE QoQ, est. 0.9%, prior 0.9%
  • 8:30am: Initial Jobless Claims, est. 270,000, prior 259,000; Continuing Claims, est. 1.99m, prior 1.98m
  • 8:30am: Advance Goods Trade Balance, est. $65.1b deficit, prior $65.1b deficit, revised $63.9b deficit
  • 8:30am: Wholesale Inventories MoM, est. 0.4%, prior 0.6%; Retail Inventories MoM, prior -0.2%, revised -0.1%
  • 9:45am: Bloomberg Consumer Comfort, prior 50.6
  • 9:45am: Fed’s George Speaks on Economy and Monetary Policy
  • 11am: Kansas City Fed Manf. Activity, est. 14.5, prior 16
  • 10am: Fed’s Fischer Speaks at BOE Independence Conference, London
  • 1:30pm: Fed’s Raphael Bostic to Speak about Careers in Economics

In commodities, European traders surged WTI to the midpoint of the 52 handle just in time for the US cash session. Natural gas is slightly lower in a rout for the past few weeks due to a warm spell on the east coast for the next 8-12 days. La Nina is expected to kick in from Nov-Jan, which could produce a cold wintery season. Copper is slightly higher, but fails to break the psychological level of 3. Precious metals including gold and silver caught a slight bid on dollar weakness, but have faded from weekly highs.

Dow Asia is signaling an alarm. The PBOC Put in Asia is deteriorating ahead of October’s meeting. All eyes on China…..

SPY Sector Rotations

US Equity Relative Rotation Graph (6 weeks)

US Industry Relative Rotation Graph (6 weeks)

Global ETF Relative Rotation Graph (6 week)

Stress in Emerging Growth

Stress in Emerging Growth High Yield

UST10Y monthly/weekly probing above 2.296-2.324 critical level for an upside breakout

U.S. Dollar monthly/weekly attempting a counter trend on a high timeframe, but sellers are coming in the at midpoint of the 93 handle. Need to sustain 92.80 for the upside imbalance to work, otherwise the trip to 87.50 nears.


Bonus: H&S Pattern in US Zombie Companies


American Housing Bubble

Price affordability is plaguing the housing bubble