MACRO MORNING NOTE August 23, 2017

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

Prior session U.S. equity index squeeze was made possible by Politico’s report of Trump admin ‘making strides’ on tax reform, along with a wicked short cover in WTI. The combination of market generated events sent bonds lower, yield higher with monies rolling into equities. That was reversed overnight following Trump’s Phoenix speech where he said, “if we have to close down our government, we’re building that wall”.  S&P futures declined as much as -40bps on comments with overall US equity futures weak this morning. Global stocks in Asia and Europe are mixed as well.

Stock markets around the world are starting to pay more attention to domestic issues in the United States. Congress must pass the spending bill by Sept 30 to avoid the shutdown. President Trump is threatening to bring the U.S. government on the edge of a shutdown so he can pressure congress into funding his boarder wall. He desperately needs to accomplish something this year despite the massive uphill battles in Washington deadlock to satisfy is core base. Stock markets should start paying attention to economic, political, and social turmoil in the United States as it all unfolds as once in the second half. The sudden reminder of turmoil comes at a time where markets ignored issues due to central bank liquidity propping indexes, but it seems as that low vol period is nearing its end.

Asian markets closed mixed as Wall Streets tax reform rally was reversed overnight with Trump’s threat of government shutdown. The Nikkei225 broke a 5-day losing streak closing postive +26bps on the close, but failing to retake the 20,000 mark. Over to Australia, where the ASX200 dropped -22bps following mixed base metal price action. Mainland China stock markets edged lower with Shanghai Composite -08bps and Shenzhen Composite -33bps. Hong Kong’s markets were halted overnight on a tropical cyclone measuring 10. Asia was supposed to carry the risk on mood from Wall Street prior session, but failed to do so after Trump’s comments about a possible government shut down spooked Asian markets.

European markets are down to mixed this morning following Trump’s threat of government shutdown. The CAC40 -09bps, DAX -44bps, UK100 -22bps. Markets were supposed to be calm on the eve of Jackson Hole as traders await Mario Draghi’s speech. WPP, the world’s largest advertising group, cut its full-year net sales outlook after a drop in demand. Europe is still dealing with the implosion of Provident Financial where shares were down -66% from prior session. The EUR/USD edges higher probing into the 1.18 handle as the reflation trade declines in the 8am hour following perhaps more U.S. traders reacting to Trump’s overnight comments. Overnight data in Europe beats in Euro zone but that was ignored.

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, est. 53.5, prior 53.3; Services PMI, est. 55, prior 54.7; Composite PMI, prior 54.6
  • 10am: New Home Sales, est. 610,000, prior 610,000; Sales MoM, est. 0.0%, prior 0.8%

Weakness in U.S. small caps is very concerning could highlight an overall market topping process…

Yesterday’s reflation trade surge in the U.S. is rolling overnight dragging down S&P futures following Trump’s overnight comments about threatening a government shutdown..

More of the same in Europe, with regional 10Y yields lower with stock markets.. EUR/USD to the upside tagging 1.18 handle…

Japan’s Nikkei225 index along with USD/JPY funding currency is fading hard this morning.

What if XLE was telling the true economic state of U.S. economy?

API

  • Crude -3.595mm (-3.5mm exp)
  • Cushing -462k (+300k exp)
  • Gasoline +1.402mm (-1mm exp)
  • Distillates +2.048mm

In commodities, a rush into precious metals is certainly the case this morning after overnight events. Base metals subside after a multi month ramp where we think it’s stemming from China. WTI is flat this morning after a bearish API report following crude product builds. EIA will be at 10:30 am. No love for soft agri futures this morning. Bitcoin tags 4237 level after a clear prior session to 3600 could be on the path for new highs this week. That would be interesting considering it’s the eve of Jackson Hole.

In currencies, weaker dollar heading into 8am a delayed response from overnight comments from Trump about a government shutdown to get his boarder. USD/JPY flirts with the low 109 handle.

SPX500 daily MA ribbon attempts support

NYAD Cumulative risks a bearish crossover in cloud

Perhaps, with markets paying more attention to reality such as politics in Washington. That the 2s10s curve will not be ignored any longer?

Weakness in CRB Index rejecting 181 pivot with downside projection back to S1 165.

DXY attempts support but there is a risk 92.52 200sma weekly will be seen. Political turmoil in America cannot be ignored any longer.

SPX500 R2 2398- R3 2578 somewhere there will be the blowoff top then revert back to pivot 2090.

UST10Y reversion back to pivot 2.13

WTI compressed use pivot 44.81 as directional imbalance hint