MACRO MORNING NOTE August 29, 2017

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

North Korea’s latest provocation came overnight with missile launch over Northern Japan. The move was seen as unprecedented, which sent global stock markets in all regions lower. S&P futures are lower this morning -50bps with UST yields lower (UST10Y 2.108) and the dollar probing into the high 91-handle. Precious metals have been the multi-session winner with gold at 1316 and silver 17.43. WTI remains in the high 46-handle following the threat of inventory builds with refinery shut-ins on Texas’s coast.

Starting in Asia, where according to N.Korea’s Mun-hwan, the launch was meant to show that an attack on Guam is possible at any time.

Asian stock markets decline as North Korea missile launch raises concern. Investors turn to U.S. treasuries and precious metals for safe haven assets, but not the dollar. Asian equity benchmark is headed for a major loss and it’s only Tuesday…The MSCI Asia Pacific Index decreased -20bps to 160.15 after BTFD traders came in earlier at  -60bps. Prime Minister Shinzo Abe said the overnight flight was “an unprecedented, grave and serious threat”.

“I don’t think we’d see war breaking out, but this has made investors risk averse,” said Nescyn Presinede, fund manager at Rizal Commercial Banking Corp. in Manila. “We will see a selloff in equities as investors turn towards so called safe haven assets like U.S. Treasuries and gold.”

Japan’s Nikkei225 halted a two day rally extending the loss for the month -130bps still not being able to surpass the 20,000 mark. USD/JPY slid into the midpoint of the 108 handle with weaker dollar probing into the 91-handle. Korean KOSPI closed -20bps where traders saw a BTFD opportunity even though their neighbor in the north is sending the world into the second Korea war. Miraculously,  China’s stock markets are unfazed by all of this and as we explained it’s because the PBOC has to prop markets until after 19th communist meeting this fall. Australia’s ASX200 closed -70bps with New Zealand’s NZX50 -110bps.

On to Europe, where the EUR/USD probes 1.20 handle as the dollar continues to deteriorate. A strong EURO could be a headache for exports in the area… So, it’s a a double whammy for Europe this morning with European stock markets dumping on North Korea and the Euro gain. Regional Gov’t 10y yields are lower as traders rush into bonds.

Over in the US, the digestion of Hurricane Harvey’s impact is still relatively unknown. Texas has the 2nd largest GDP in the United States and the 10th largest GDP in the world. According to UBS: “Initial claims are likely to soar following Hurricane Harvey but the effect on jobs and growth should be smaller.” CL King says, “Hurricane Harvey could damage more vehicles than Hurricane Katrina”. Major Texas refineries remain shutoff leading to pressure in WTI with the fear of more supply builds.

Global markets are shocked overnight after North Korean missile launch except for China. This is due to PBOC holding bids to stabilize markets for 19th communist conference this fall.

Deterioration of market structure in the US is visible with small caps in decline…

In the U.S., ratcheting down in the reflation trade, plus oil over the course of 24-hours..

In Europe, regional stock markets and yields are lower with EUR/USD soaring…

In Japan, Nikkei225 is lower with USD/JPY and yields.

China ignores as markets have to be propped for 19th communist meeting this fall.

Weakest link in U.S. is energy, but broader markets ignore..

We’re in a new regime of weaker dollar and stronger EURO.


CRB Index monthly/weekly Pivot 181 resistance

SPX500 monthly/weekly stalling risks an unfair high and reversion back to 2090 point of control

DXY monthly/weekly S3 87 projection

WTI monthly/weekly compression 46-50 will lead to major move nearing. Use pivot 44.81 as directional imbalance hint

UST10Y monthly/weekly if 2.13 pivot fails S1 1.64 projection