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MACRO MORNING NOTE DECEMBER 15, 2017

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

Global stock markets are mixed in Europe and Asia following Wall Street move lower on tax reform uncertainties developing in the prior session.

Stocks in the United States edged lower on Thursday, as the tax reform hopes dimmed following John McCain’s hospitalization and Marco Rubio’s surprised future-no-vote on tax reform. The reflation trade has faded with a dollar -.23% at 93.47 and UST10Y printing at 2.364.

Fireworks are expected next week, with events including final vote on tax reform and debt ceiling debacle.

WSJ explains tax reform has been a major contributor to rising tides in stock markets, but what happens if tax reform is shelved? They fail to mention the global network of central banks boosting risk assets across the world, but we’ll save that for another session.

Expectations for a reduction in corporate taxes have contributed to the recent climb in U.S. stocks, analysts say. In Europe, some companies that generate a good chunk of their sales in the U.S., such as equipment rental company Ashtead Group and ingredients maker Tate & Lyle, would also stand to benefit from a U.S. tax cut, according to European equity strategists at Deutsche Bank.

Jason Ware, chief investment officer at Albion Financial Group said, “a tax cut could add to corporate profits in 2018 and 2019, but might not do much to change the economy, and the most important thing for stocks is that U.S. unemployment and interest rates are still very low.”

As we’ve pointed out before, supply-side economics doesn’t work too well for the middle class.

Overall, the mood in Asia was nothing to dance about. Hong Kong’s Hang Seng was a sea of red closing lower by -1%. It was a similar story in China’s Hang Seng, which dropped -1.77%. Banks and insurance companies were the biggest stress points for Chinese markets, along with land developers. Japan’s benchmark Nikkei225 declined -.62% with a weaker USD/JPY probing to the low 112 handle. Australia’s ASX/200 dropped -.24% with weakness in financial stocks.

Provided by ZeroHedge, the global credit impulse wave has been declining throughout 2017 and “hit rock bottom.” This could lead to asset prices stalling, hitting an unfair, then reversing.

A more concerning chart:

Global reflation via China has now sputtered out..

Population growth has been a major driver of Wilshire 5000 index, but since about 2008 has decoupled indicating monetary policy was used in attempt to bridge the gap.

Total energy consumption and 25-54-year-old employees have stalled since 2000. The Fed used a ZLB in FF coupled with ballooning federal debt to bridge to fix the economy, but as we know that has not helped. Peak empire is the best case…

The reflation bump from earlier this month has stalled.

GSCI precious metals, industrial metals, and energy has stalled on a monthly timeframe.

CRB and BCOM <50sma on the weekly timeframe.

Still, confirmation about an upwards commodity cycle when looking at CRB/SPX Ratio

Global stock are starting to stall. Why are central banks allowing that to happen now?

Are financials going to follow the 2s10s flattening?

HYG is stalling

Mania phase, valuations are fairly stretched..