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MACRO MORNING NOTE August 25, 2017

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

Global stock markets in all region are experiencing risk-on sentiment ahead of Jackson Hole this afternoon. The main speakers will be Mario Drahi at 3pm and Janet Yellen at 10am est. Around 5am, Gary Cohn pushed S&P futures higher suggesting the Trump admin will be attempting to push tax reform once more before year end.

China Communist Party is getting ready for their 19th national congress expected to take place this fall in Beijing. To do this, China must support global markets and in recent times support commodities. In other words, China is making every possible precaution for the successful hosting of the upcoming event.

China has been a tremendous stabilizer in oil as the communist government fills up their SPRs. Michael Tran from RBC Capital Markets says, “At a minimum this market needs China to keep buying to stop the wheels from falling off”.

In recent times, we’ve seen a tremendous bid push up base metals such as copper and iron ore, and we believe once the 19th national congress is over this fall—bids will disappear.

Starting in Europe where the CAC40, DAX, and UK100 are mostly postive, but gains have been limited in retail after Amazon’s announcement of Whole Foods price cuts. European Central Bank President Mario Draghi is due to address the Jackson Hole economic symposium at around 10am. Base metals continue to jump enabling bids in emerging growth countries and miners. Around 4am, dollar weakness to the low 93 handle has sent EUR/USD to 1.18 area. Regional 10Y yields have advanced along with equity markets in the region from cash session start. Terrible week for WPP plc world’s largest advertiser crashing lower on lower guidance for the year and Provident Financial crashing -75% after profit warning.

per CNBC,

European Central Bank President Mario Draghi is due to address the Jackson Hole economic symposium at around 7 p.m. London time. Investors are carefully following what central bankers are saying at the symposium as they have increasing doubts over the next steps for monetary policy. On Friday, a Moody’s economist told CNBC that the Fed has a lot to do to convince the market that more hikes are on the way.

Asian markets advance despite limited leadership from Wall Street as traders await Jackson Hole. Regional equities in China HKG33 +168bps and SCHOMP +183bps following the government bid to protect markets until after 19th national congress this fall. Japan’s Nikkei 225 +51bps with gains in auto-markets, trading houses and financials driving the broader index higher. Down in Australia, the ASX200 -30bps as investors digested a round of earnings. Investors also awaited Friday speeches from U.S. Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the annual central banking meeting in Jackson Hole.
Kathy Lien, managing director of FX strategy at BK Asset Management,

Due to the uncertainty in the global markets and recent sell-off in U.S. stocks, there’s no better reason than the now for Yellen and Draghi to stick to script,

 

In commodities, base metals such as copper and iron ore continue to the upside not on global growth, but on manipulation from China to protect world markets into the 19th national congress this fall. Gold and silver bid with dollar weakening overnight. Soft agri plays continue to weaken giving up a majority of years gains. Bitcoin probes the 4349 level attempting an ironic breakout during Jackson Hole.

On the other hand, WTI has recovered +40bps to the high 47 handle following yesterday -2% fall. Risk on overnight in /RB following hurricane Harvey expected to make a nuisance in Texas… Rig counts at 1pm.

US Event Calendar

  • 8:30am: Durable Goods Orders, est. -6.0%, prior 6.4%; Durables Ex Transportation, est. 0.4%, prior 0.1%
    • Cap Goods Orders Nondef Ex Air, est. 0.35%, prior 0.0%; Cap Goods Ship Nondef Ex Air, est. 0.15%, prior 0.1%

The components of the underline stock market are severely weakening..

Bonds <TLT> sustain >50sma with an expected MACD bullish crossover

   
S&P High Yield Dividend Aristocrats Index monthly bearish MACD crossover
NYAD Cumulative cloud attempts bearish crossover
VEU/SPY Ratio could allude to ex US fund flow