MACRO MORNING NOTE DECEMBER 14, 2017
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland
Asian stocks were mixed on Thursday after the Federal Reserve raised the federal fund’s rate to a target range of 125-150bps and raised its outlook for growth next year. The bank maintained its forecasts for rate hikes next year despite the low inflation projection.
Stocks in Australia, Japan, Hong Kong, and South Korea were all mixed and ended lower on the close.
The Fed increased interest rate hikes and the outlook for 2018, as it does every year. Yellen mentioned stock valuations are at the high end of historical levels, but she has been saying that for years. She mentioned the imminent yield curve inversion and the recession that will follow: “correlation is not causation.”
The reflation trade’s response was fade the dollar, as it now prints at 93.44 with a fading UST10Y off the 2.41 area. The tumble in the reflation trade could be because of Yellen’s comment, “the Fed is not convinced that the tax package will have a big impact on growth or productivity.”
We’ve mentioned before and we tend to agree with Jamie Dimon: tax cut will cause companies to buy back their own stock (continue financialization instead of producing jobs).
“Markets are generally interpreting the meeting as a dovish hike,” said Marvin Loh, senior global market strategist at Bank of New York Mellon Corp in Boston. “The improved view in 2018 may be driven by tax reform, which will not have a long-lasting impact.”
Later this morning, the ECB will provide details of taper plans for 2018 and an outlook for 2018. Also, the BOE is expected is set for a policy decision today.
“Asian currencies strengthened this morning, largely on the back of what the market perceived as dovish Fed hike,” said Khoon Goh, head of Asia research at ANZ. “Also with US 10-year Treasury yields falling after the Fed’s announcement, that is seen as positive for portfolio flows into emerging markets including Asia as well.”
“For next year, we are looking at Malaysia, Korea, the Philippines and Singapore starting to tighten their policy,” said Goh..
As a whole, European stocks slip this morning ahead of two important central bank meetings. First with the ECB to provide clarity on 2018 outlook and then the BOE will complete a policy decision. Downbeat in the EU comes after the Fed raised interest rates prior session.
The financial sector in Asia and Europe traded lower after Yellen comment on the persistently lowe inflation targets..
“The make-up of the Federal Reserve is going to change a lot in the next few months and with that we can’t necessarily put too much weight behind the statement last night,” said David Madden, CMC markets analyst in London.
In commodities, WTI is lower -.46% to 56.41 fading a major resistance for 57-59. Weather forecasts for the East Coast could include a much warmer period in the second half of December, as Natgas continues it’s death spiral now at 2.660. Copper attempts to buy the dip after a nasty -5% correction last week, trades at 3.062. Gold and Silver, in response to the rate hike prior session, have erupted without much that large of a move in the dollar.
Monthly GSCI precious metals, industrial metals, and energy—- all have stalled on a monthly timeframe.
The reflation trade in the United States is weak after the rate hike. WTI tumbles this morning with S&P500 futures mixed.
The surge in reflation trade from tax cuts and infrastructure appears to be now stalling..
Monthly Dow Composite, Asia, and Europe, all indicate >R3, which is dangerous…
Yellen declares victory too early..
<USHL5> linear systems tend to break
Why aren’t central banks breaching the 2x top in international HY?
Commodity charts do not look healthy
Supply Side economics really helps the middle class?
Yellen said this: