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MACRO MORNING NOTE DECEMBER 11, 2017

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

Global stocks are experiencing a minor risk on this morning, led by financials, while the reflation trade in the United States is mixed.

“In the US, the Federal Reserve should deliver the long-signaled next 25 basis point step-up in the hiking cycle on Wednesday, and confirm its projections of three further increases through 2018,” says Ian Williams at Peel Hunt

“The eurozone economy . . . has yet to demonstrate similar inflation dynamics. So the message from the ECB on Thursday will again be that the policy stance will remain highly accommodative. The Bank of England’s decision to return the bank rate to 0.5 per last month should be a one-off.”

European stocks have had trouble advancing this morning, failing to capitalize on gains produced in Asia and rolled over from the US close on Friday. Ther reflation trade in the U.S. drifted lower as investors focus on FOMC meeting on Wednesday and European Central Banks later in the week

Ahead of Wednesday FOMC meeting, projection so far stands at:

Starting the week on the wrong foot in Europe, DAX -.12% at 13,145, IBEX -.28% at 10,292, and UK100 +.37% at 7,434. Traders are mixed in Europe ahead of this week’s FOMC meeting, which the Fed is expected to hike. The dollar is drifting lower this morning with an EUR/USD at 1.17901 level. The Stoxx Europe 600 was little change, paring early gains for losses in telecoms and utilities shares offset by gains for miners and banks. Most regional bonds advanced and the Euro as explained before climbed. Sterling declined as some of the statements made to clinch a breakthrough Brexit deal last week start to deteriorate.

Per BBG, Central Bank schedule for the week,

Market focus returns to central banks this week with the Fed expected to raise rates at its meeting on Wednesday and the European Central Bank to reveal details of plans to taper asset purchases on Thursday. The Bank of England and Swiss National Bank also meet. With the world economy heading into its strongest period since 2011, Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.  

Here are some of the key events scheduled for this week:

  • Fed policy makers on Wednesday are projected to raise the target range for their benchmark interest rate against a backdrop of continuing robust U.S. economic conditions, a vibrant labor market and forecasts for inflation to pick up.
  • The European Central Bank, the Bank of England and the Swiss National Bank set monetary policy at their respective meetings on Thursday.
  • Among top U.S. economic reports are consumer inflation on Wednesday and retail sales on Thursday.
  • European lawmakers continue to debate Brexit and weigh moves on the next step, while North America Free Trade Agreement negotiators meet again.

Over to China, Hong Kong stocks advanced to their highest finish in a week on Monday, up for the third session in a row, buoyed by tech. The Hang Seng Index advanced +1.1% to 28,965, the best close since Dec 04. The index has posted gains after weeks of losses.

“The market is stabilizing as big caps recover. But it is unlikely to see a strong upside for now as people are fed up with the correction and are not buying second-tier companies,” said Alex Wong Kwok-ying, director of Ample Finance Group.

On mainland exchanges, the Shanghai Composite index closed up 1.00% to 3,322, the biggest gain in 3 months. The CSI300 Index- which tracks large-cap stocks advanced +1.70% to 4,069. The Shenzhen Composite Index advanced 1.50% to 1,919.

Tokyo’s Nikkei 225 closed up 0.6% at 22,938.73, Seoul’s Kospi rose 0.3%to 2,471.49, and Sydney’s S&P/ASX 200 ticked higher by 0.1% to 5,998.3.

In commodities, WTI is mixed -.38% at 57.08, continuing to fade the heavy resistance level at 57-59. Precious metals via gold and silver are basing after a multi-week beat down. Copper /HG is flat in the session, but the psychological 3 handle has been violated, after last week’s -5% correct to 2.97 – 2.98 area. The commodity cycle boosted by energy and industrial metals for the past 1.5-years could be stalling indicating the ‘global synchronized growth’ narrative is faltering.

Compression on UST10Y

Compression on <USHL5> indicates move will follow

Gold/Stock Ratio shows on bearish signals

All World FTSE <FAW> stalls

Winter weather explained on the East Coast, weak La Nina in progress..

Foward indicator, Sweden House Price Index and China Newly Built House Prices y/y change rolling over

Small Business Hiring Plans at extremes, but it’s only ‘plans’… Nothing has changed in the economy just euphoric animal spirits…

Last week’s ATL GDPNOW Q4

h/t FacSet