MACRO MORNING NOTE December 01, 2017

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

Global stock markets are mixed this morning after Senate Republicans delayed voting on their tax bill last night. Senators will rework issues surrounding the tax bill with the expectation of roll call votes for 11 am this morning.

The Hill breaks down what went wrong,

The decision to skip a late-night session on Thursday comes as deficit hawks, led by Sen. Bob Corker (R-Tenn.), push for a guarantee that the Senate tax legislation won’t increase the deficit. They had demanded the inclusion of a “trigger,” but were told by the Senate parliamentarian on Thursday that it didn’t comply with the Senate rules. That resulted in a dramatic showdown on the Senate floor as leadership and lawmakers discussed an automatic tax increase as an alternative for the trigger. Though Republicans argue economic growth will cover the $1.4 trillion cost of their bill, an analysis released on Thursday found that it would still cost roughly a $1 trillion over a decade. The 11th-hour scramble to work out a deal on the deficit made it appear increasingly unlikely that Republicans would be able to pass their tax bill on Thursday night. 

In response, global stock markets in all regions are mixed to down. S&P futures are lower -.28% to 2,643 with the reflation trade (dollar and UST yields) spiraling down as well. One indication prior session that something was amiss, small caps were barely green while the entire market melted up. Ideally in a tax cut situation small caps being domestic small-mid US companies would be the biggest beneficiaries. We’ve been watching industrial metals such as GSCI Industrial metals index and are watching a stall that has been in place since China’s Congressional Communist meeting in mid-October. WTI prices have stalled as well, as the OPEC meeting was merely hype but OPEC and Russia agreed to extend their oil output cut to the end of 2018. A call for liquidity in the US cash session will be tested again— as seen a few sessions back in tech— high timeframe sellers disposing.

Starting in Asia, the region is mixed after US tax bill vote gets delayed. In Australia, ASX200 is higher +.33% to 5,989 with financials propping up the overall index. In Japan, Nikkei225 closed up +.41% to 22,819 with a slightly stronger Yen. Across the Korea Strait, the KOSPI closed slightly lower as tech is still in question. Over to China, where Hong Kong’s Hang Seng declined -.17% as a sour mood was not lifted by the national plunge protection team. In mainland, the Shanghai was flat and the Shenzen advanced +.78% to close at 1,916.

  • The Caixin/Markit manufacturing Purchasing Managers’ Index for November came in at 50.8 — below expectations
  • That survey focuses on smaller businesses in China compared to the official PMI reading, which was released on Thursday

Over to Europe, much of same with regional stock markets selling off, as concerns mount at potential delays to US tax cuts. It’s starting to become a systematic risk– hype around so much hope for fiscal stimulus in the US, which could be a dud and lead to a disappointment phase. More importantly, a global call for liquidity.

Overnight headlines:

  • European equities hit as potential delay to US tax cuts knocks sentiment
  • US Senate delays vote on tax reform bill, prompting caution
  • Dollar holds its nerve as the wait for Washington tax accord goes on
  • Treasuries yields down as investors buy into the haven debt
  • Asia equities mostly gain as Chinese stock sell-off slows
  • Opec deal helps crude rally over $63

The hottest topic this morning bothering the clouded central bank controlled minds of traders is the delay of tax cuts– which sent regional European stock markets lower. The DAX is lower -1.36% to 12,874, IBEX35 is lower -.57% to 10,152, and the UK100 is lower -.28% to 7,301. Regional Gov’t 10Y are diving with equities this morning, along with a lower EUR/USD proving in the high 1.18 handle. Brent oil is somewhat stable in the 63 handle. Lofty valuations of regional markets and elsewhere are vulnerable to a tax delay because of the steep upward slopes in recent quarters, as traders rushed to price in something that was just hype. Investors are selling stocks this morning and buying bonds in a defensive play heading into the weekend.

Starting in the US, reflation trade is lower sending S&P futures down.

Much of the same in Europe with regional Gov’t 10Y yields slipping with the EUR/USD sending stock markets lower.

Cause for concern earlier this week in China was bond yield appreciation. Equity markets in the region are lower.

Japan’s Nikkei225 and USD/JPY attempt countertrend

Europe started the SPX500 selling around cash session start

GSCI Index: Precious Metals, Industrial Metals, and Energy seem to be stalling (weekly)

Prior session, while the melt up for everything else occurred. Small caps were tossed.

Retailers, gold, and insurance were sold prior session

International ETF show Brazil, Mexico, and South Korea lower prior session

Where is the weakness?

SPX500 monthly/weekly the most euphoric stage yet—- > R3 usually leads to rapid moves and long tail whiskers as the potential for an unfair could form.

WTI monthly/weekly with OPEC meeting wrapped up 58-59 weekly MAs major resistance level.

DXY monthly/weekly S1-S2 compressed waiting for major direction. Major line in the sand is weekly 200sma.

UST10Y monthly/weekly 50sma weekly compressed waiting for direction