MACRO MORNING NOTE DECEMBER 18, 2017
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland
“We [US] expect lawmakers to pass the tax bill in the coming days or, at the latest, in the first few weeks of 2018,” says Chih-Chieh Chen, investment strategist at Credit Suisse.
Further, “the three main US equity indices rebounded to a record close on Friday following reports that Republican senators Marco Rubio and Bob Corker would support the Republican tax reform bill.”
Most Asia stock markets closed higher on Monday, given that investor hype and hope surrounding the US corporate tax reform remains the driver of markets.
Japan’s Nikkei225 closed higher 1.55% at 22,901, as financial services advanced with autos and tech. Japan’s Nov exports rose 16.2% on year, above the 14.6% forecasted in a Reuters Poll.
In Korea, the KOSPI was flat at 2,481 with steelmakers leading the charge lower. Shares of major car makers in Korea were mixed following the news of an ongoing dispute between Hyundai Motors and factories.
Over in Australia, the ASX200 increased +.70% at 6,039 as Rio Tinto climbed 1.22%, but base metals like copper declined -.61% to 3.118.
Over to China, the Hong Kong’s Hang Seng Index closed up .98%, while the Shanghai Composite was flat. The PBOC raised the 14-day reverse REPO rate by 5bps to 2.65%. The move to tighten financial conditions resulted from the Federal Reserve raising interest rates last week.
US Republicans unveiled their tax plan last Friday inducing gains in regional stock markets in the US. The reflation trade, on the other hand, has been little responsive with a dollar at 93.71 and the UST10Y 2.379. Nevertheless, a 2s10s bearish flattening at .51 signals troubles ahead.
European equities are joining Asian stock markets, sparked by a higher close on Friday from Wall Street on tax reform.
In commodities, WTI continues to find resistance in the 57-59 range. NatGas is higher 2.47% at 2.683, after a sizeable liquidation in the past month, due to warming weather conditions on the East Coast. Copper has recovered some in a v-shape dip, after dipping below 3 last week. Gold and Silver are attempting to reverse after weeks of downside following the rate hike.
Observing the Copper/Gold Ratio overlaid with UST10Y
No signals in Commodity/Equity Ratio
Consumer Sentiment ignores the 2s10s curve flattening
Commodities are weak
SPY/VIX Ratio at extremes
Further flattening 2s10s curve
2s10s verse WTI