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

Morning Headlines: 

  •  Dollar declines -.10% ahead of FOMC
  • Uneasy feel ahead of anticipated rate hike
  • Moore loss throws tax cuts into question
  • WTI Flat, Global Stocks Mixed

Damian Testi, investment manager at Walker Crips said in a morning note, “I expect the Federal Open Market Committee to emphasize that the US labour market remains resolute and economic activity is strong.”

“The roadmap I anticipate for 2018 will be a rhetoric for steady, gradual interest rate rises, and I expect three or four more 25 basis point hikes next year.”

Ahead of FOMC, today’s target range for 125-150bps is 87.6%, there is also a 12.4% probability of 150-175bps target range…

Reflation trade this morning is mixed with short-dated yields rising, ass longer-dated yields are suppressed. The dollar is having trouble sustaining 94-handle, with WTI flat at the midpoint of the 57 handle. Overnight, the reflation trade and S&P500 futures declined as Moore lost, but have recovered in a v-shape dip. The Moore loss jeopardizes the Senate majority for President Trump, thus creating complications for tax reform and other future legislation.

The dollar is mixed this morning ahead of the Federal Reserve’s December rate decision. As expected, the consensus is a raise by 25bps. Such a move has been priced in by the dollar probing the 94 handle, leaving much of the attention to focus what Yellen will say at her last meeting. The EUR/USD is slight higher flat this morning at 1.17422, as the USD/JPY is lower -.19% at 113.335.

The sense of caution for markets comes after Moore’s loss in Alabama went to Democrats, leaving the Republican’s majority in the legislature 51-49.

Viraj Patel, FX strategist at ING said in a note, “the initial focus for financial markets will be on the knock-on effects this has for a tax bill being passed through the Senate.”

“We still believe that there are major political hurdles to be cleared to get any tax bill over the line.” Also, the debt ceiling debacle, which was kicked down the can for later this month will be dealt with next week, adding, even more, uncertainty for markets.

Optimism for markets has always been accompanied in late year speculation for the upcoming year. The global synchronized growth narrative is based on a commodity cycle that central banks around the world have printed trillions. More of the same, with the expectation of different results, we call that, insanity, as per Albert Einstien.

Mizuho Bank writes in a commentary that “2018 might be a year that interest rates normalization can finally proceed apace, not only in the U.S., but also the rest of the world,” adding, “The risk is that further policy normalization in the U.S. or Eurozone could either draw capital away from economies that cannot follow the normalization cycle, or prompt some correction in housing prices for those that do follow.”

Perhaps, a preview here?

In commodities, WTI is flat this morning at 57.49, after a plunge in the cash session but a minor rebound in API data.

API Crude Oil Stock Change in the United States decreased to -7.38 BBL/1Million in December 8 from -5.48 BBL/1Million in the previous week. 

NatGas finally catches a bid after a -15% decline since 11-29-17.

Precious metals remain under pressure with Gold -.25% at 1,240 and Silver flat at 15.695. Industrial metals are weak as well, stalling in the past few months post-Chinese Communist meeting in October. Copper is +.81% at 3.047, after a near -5% correction last week, knocking price off the psychological 3 handle.

The monthly perspective of precious metals, industrial metals, and energy.. All have stalled…


Ugly Natgas chart (weekly)

SPX500/VIX ratio

Small Caps weak in the US

The US ignores large-cap China stocks

And of course, where are we in terms of valuation?