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MACRO MORNING NOTE DECEMBER 04, 2017

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

European markets opened some what higher after Asian stock markets closed mixed on Monday. Overnight investors are digesting the U.S. political landscape. In focus, the U.S. senate passage of the tax bill and implications of Michael Flynn (Trump former national security advisor) guilty plea.

Starting in Europe, where the DAX +.58% at 13,020, IBEX35 +.84% at 10,169, and UK100 +.36% at 7,359.

Jumping to Asia, where Japan’s Nikkei 225 dipped -.50% to close 22,707, while South Korea’s KOSPI jumped 1.1% to 2,501. Over in China, Hong Kong’s Hang Send index advanced +.20% to 29,138, but the Shanghai index declined -.20% to 3,309. In Australia, the ASX200 declined -.10% to 3,309. Regional stock markets in Southeast Asia were mixed. Singapore stocks fell but rose in Indonesia.

Michael McCarthy, chief market strategist at CMC Markets, said in a daily commentary,

“The reaction of investors is unpredictable in light of positive market moves ahead of the vote and suggestions that corporate tax cuts are to some extent already priced in. While the reduction in tax rates is widely viewed as stimulatory, and therefore supportive of higher share prices, the stellar run and record levels of U.S. share indices have some fearing a “sell the fact” reaction”.

In Asia, U.S. politics overwhelmed market in the region to start the week. On early Saturday, Republicans rammed a $1.5 trillion tax overhaul through the senate, a radical revamp of the nations tax code that would cut individual taxes and slash the corporate tax rate from 35 percent to 20 percent beginning in 2019. As noted, 2019 is rather far away and markets could be widely priced in from here moving up roughly 40% in S&P500 since the central bank hockey stick save in 1Q2016. Also, the political turmoil accelerated on Friday after former U.S. National Security Adviser Michael Flynn pleaded guilty to lying to the FBI and said he would cooperate with the Russian probe.

In commodities, WTI is down -1.00% at 57.72 fading from the 58-59 resistance. There is a risk if market generated information from OPEC or destabilization in Saudi Arabia does not increase, there could be a reversion to 55.66. Industrial metals have stalled in recent weeks as copper probes 3.101 +.18% on session. Copper has failed to sustainably break 3.19 level, which we believe could lead to further downside of -11 to -14% correction is 3.19 is not breached. Gold and silver gapped lower by about half of percentage point following an upside gap up in the dollar on tax reform news last evening.

NatGas is slightly higher at 3.090 +1.21% with conditions from Dec 09- Dec 16 could have lower temps on east coast.

Starting with the US, S&P500 and reflation trade were crushed last Friday with ABC misreporting the Flynn situation. A v-shape recovery has since formed.

In Europe on the session, regional stock markets are higher with regional Gov’t 10Y yields lower.

In China, the Shanghai and HKG33 have been unwinding in recent sessions with declines in CN10Y and CN02Y.

In Japan, JPN225 and USD/JPY attempt a v-shape dip similar to the U.S..

Overnight reflation trade in the U.S. started to fade post EU cash.

Any type of dollar bull overnight gets sold into

 

Relative Rotation Graph (RRG) for US equity markets (weekly) with tail length 8-weeks

 

Relative Rotation Graph (RRG) for major indexes (weekly) with tail length 8-weeks

Relative Rotation Graph (RRG) for major industries (weekly) with tail length 8-weeks

Commodity/Stock Raito no confirmation yet.

Impressive melt-up in Tran

World Capitalization

Australia House Price Index H&S

President Trump %Disapproval increase

Death Cross signaled 2s10s (monthly)

S&P500 correlates with 1-month libor

Linear system in global stocks created by central banks

2s10s or consumer? Who do you trust?

SPX/VIX Ratio