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

Overnight Headlines: 

  • Tech stocks sell-off reaches Europe after starting on Wall St after tax cut deal
  • The already lightly taxed sector is dropped by US investors
  • Sterling stays under pressure after failure to reach Brexit deal
  • FTSE 100 rises, helped by the weaker pound as wider European indices slip
  • Futures trade points to further losses for tech-heavy Nasdaq
  • Oil prices remain under pressure as lift from supply cut extension fades further

Alastair George, chief investment strategist at Edison Investment Research said, “The prospective headline cut to the US corporate tax rate from 35 per cent to 20 per cent is a positive but not as significant as it may look at first sight.” 

Further he warned, “[It] appears insufficient in our view to push US equities significantly higher from current levels as the magnitude of the effect on both S&P earnings per share and overall economic growth is relatively modest compared to other factors. Furthermore, the prospective changes have been at least in part discounted by markets over the course of the year.”

Starting in Asia, where regional stock markets were mostly lower to close, as Australia’s central bank kept rates unchanged. Mixed overnight session in Asia following the healthcare, tech, and Nasdaq selloff in the United States prior session.

In Australia, the ASX200 closed down -.23% at 5,917 led by weaker commodities and lower financials. In Japan, the Nikkei225 closed lower by -.37% to 22,622. Across the Korean Strait, the KOSPI actually gained .34% to 2,510.

Over to China, where Hong Kong’s Hang Seng closed -.53%, Shanghai Composite lower -.20%, and Shenzhen declined -1.88%. Alibaba Group <BABA> is down -3% in the US premarket at 6:00 am. Copper futures are weak this morning -2%. Watch China stress is originating from region.. 

Wei Liang Chang, a foreign-exchange strategist at Mizuho Bank, wrote in a note that “failure in the U.S. equity rally, and a retreat in [10-year Treasury] yields back below 2.4 percent suggest that tax reforms had already been partially expected, while new uncertainties related to investigations into [President Donald] Trump are also weighing.” 

The Reserve Bank of Australia kept its cash rate unchanged at a record low of 1.5 percent during its December policy meeting.

Over to Europe, where a tech rotation into financials continues, as broad indexes are now red. The DAX -.46% to 12,979, IBEX35 -.35% to 10,173, and UK100 +.32% to 7,345. The EUR/USD prints +.04% at 1.18690 range as the dollar weakens overnight. The Sterling GBP/USD is down a further -.50% at 1.34149, a four session low and the steepest fall in over a month. The euro is down 0.1 per cent as the US tax deal buoys the dollar. The index tracking the US currency is flat at 93.184.

In Commodities, the most active futures on CME are copper -2.22% and NatGas -.64%. Industrial metals have stalled post China’s meeting in October. Taking a look at WTI, down -.54% to 57.14 with a much larger risk of a fade if 58-59 resistance continues to reject. Precious metals (gold/silver) are basing as economic turbulence in risk on assets are lackluster this morning.

Taking a look at the most active pre market stocks in US

Clear move in the reflation trade, oil, and SPX500

SPX500 ignores Europe

Resistance in energy and industrial metals

2s10s S1 .33 projection

Who to believe?

SPX500 monthly/weekly auction failing to attract new participants above R3

CRB monthly/weekly pivot rejection with projection downside S1

WTI monthly/weekly 58-59 MAs on weekly stalling

DXY monthly/weekly boxed S2-S1 compressing then major imbalance will follow

UST10Y monthly/weekly 50sma weekly 2.332 most important line in sand for directional imbalance hint