MACRO MORNING NOTE| Yields Fade, Dollar Sinks, S&P Futures higher. Powell Put This Week?

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

Asia and European stock markets traded higher as the benchmark UST10Y has come into resistance since 2-21 at 2.957. The benchmark prints at 2.87 this morning with some analyst pointing to a long bond scenario, but as we note, that will not happen unless <2.84. As we’ve affirmed, there is a strong probability of >3% in the near term, amid the twin deficit blowout in the United States coupled with foreigners dumping U.S. debt. Nevertheless, traders will focus on U.S monetary policy, with multiple appearances from Federal Reserve Chairman Jerome Powell this week.

S&P futures traded higher this morning +.43% at 2,759 with a possible upside target of 2,794  .764-Fib. It is important to note, the index has been underneath ATHs for nearly a month, as equity traders are concerned about rising yields. We must add that rising yields are not because of growth but are due to the factors mentioned in the first paragraph.

Asian stock markets closed higher on Monday, after risk on sentiment developed from declining U.S. bond yields receding from four-year highs. Meanwhile, the dollar lacks a bid this morning -.39% to 89.54. In a world of de-dollarization, China’s long-heralded crude oil futures contract to start trading March 26. Similar factors we mentioned above why UST yields are surging is what is also forcing the dollar lower. Explained below: 

Overnight, Bank of Japan Governor Haruhiko Kuroda said the BOJ has no plans on winding down its current form of monetary policy.

As we’ve mentioned before, global central banks have no plans on tapering…

Per Bloomberg, 

Powell may help set a new direction for investors at a time when some of the biggest names in markets are at odds over the implications of this month’s surge in U.S. bond yields. Morgan Stanley put out a bullish call on Treasuries Monday, countering warnings on the securities from Goldman Sachs Group Inc. and Warren Buffett. Bond traders are still pricing less than the three quarter-point interest-rate hikes that Fed officials have signaled as likely this year.

Powell “looks like he is on track to keep the Yellen strategy — so, gradual rate rises this year,” Stephen Halmarick, head of global markets research at the Commonwealth Bank of Australia, told BBG overnight.

BBG’s key events scheduled for this week:

  • ECB President Mario Draghi speaks in Brussels on Monday.
  • Bank of Korea has policy decision and briefing on Tuesday.
  • Powell testifies before a House panel on Tuesday. He’ll discuss the Fed’s Semi-Annual Monetary Policy Report and the state of the economy. Powell returns on March 1 before a Senate committee.
  • Companies announcing earnings this week include: Vale, BASF, Standard Chartered, Bayer, Lowe’s, Galaxy Entertainment Group, Anheuser-Busch InBev, Peugeot, WPP, and London Stock Exchange Group.
  • U.K. Prime Minister Theresa May delivers a speech on Britain’s relationship with the European Union after Brexit.
  • A barrage of data is expected out of Japan including retail sales and industrial production Wednesday, and capital spending Thursday.
  • In China, the official and Caixin purchasing managers’ indexes on Wednesday and Thursday respectively may show growth momentum slowed slightly in February, though the signal may be clouded by the holidays.

“A rise in rates to 4.5 percent by year-end would cause a 20 percent to 25 percent decline in equity prices,” Goldman said in a note.

UST10Y 4.10 EOY target unless Powell changes course…

US debt markets and the dollar are scared about the federal debt explosion. Trump has to blowout deficits otherwise the economy slows, but this is dangerous in higher yield environment.

BTC has yet to stabilize

High timeframe view of the dollar

High timeframe view of UST10Y

High timeframe view of commodities

High timeframe view of WTI

High timeframe view of SPX500

What if there is no economic boom and it is all merely propaganda?