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MACRO MORNING NOTE January 05, 2017

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

Global stock markets are higher this morning while commodities take a dip. S&P futures advance +.27% at 2,731 following a ramp starting in the European cash session. Asia and Europe are higher with the belief that more leverage in an overleveraged system has produced a commodity upcycle, thus “global sync growth” narrative. WTI fades from the 62 handle -.81% at 61.39, where we are waiting for a short thesis to develop. Copper has also declined -.54% to 3.240 following the +13% ramp starting in December. The commodity rip higher has been on the feelings that the economy is getting better, but as we know, balance sheets of central banks continue to expand and drive these markets higher. Natural Gas subsided this morning, as weather prospects for the second half of January are warmer. The dollar finds a bid, but it’s hardly over the 92 handle leaving us to believe more downside is in the cards for 2018. Overall, the reflation trade in the US is weak, with a flattening 2s10s curve and a dollar that has been in a death spiral for nearly one-year.

Overnight, Asia indexes hit multi-year highs, as central bank omo and optimism drives prices higher. Japan’s Nikkei225 advanced +.89% to 23,714 hitting 26-year highs, as the BOJ continues to force markets higher; Inversely the yen weakness giving way to a higher usd/jpy at 113.245. In Korea, the KOSPI gained 1.26% to 2,498, with automakers and tech stocks leading the way. In Australia, the ASX200 advanced +.74% at 6,122 with telecommunications, financials, and materials leading. Australian markets ignored the weakness in commodities.

In China, the Shanghai Composite moved up +.20% at 3,392 and the Shenzhen Composite closed flat. Gains in China have primarily been based on mfg data early this week showing late 2017 was better than expected. Our thought includes a China slowdown in 2018 with a commodity cycle hitting resistance at some point.

Further, in our opinion, President Trump is attempting to push the recession off until after the midterm. Is that possible? We have firmly been bearish on the United States presenting more opportunities elsewhere. The United States is overpriced and valuations are certainly not cheap, doesn’t mean we’re always bearish, we just think prices on an ex. US basis are more appealing.

Central Banks have managed to drive Shiller PE Ratio to now 33.08

Top Channel print

Nevertheless, demographically the US is in trouble…

Structural decline could lead to a stock market imbalance (causation: millennials overdosing on opioids).

Precious metals compress, industrial metals hit resistance, and CRB index attempting a major reversal (dependent on the dollar).

Credit spreads could reverse

More than ever…. Signals there was never a recover for main street, just asset prices for Wall Street. 

Economic bellwether are housing prices in Australia…

Tempatures will start to heat up in the second half of Janurary.

But first, the weekend will be dangerously cold.

CRB Index attempts to break neckline and signal a total rebalance in commodities.

At some point, WTI will hit an unfair high, that is why we’re waiting for a short thesis to develop…

Is fiscal policy in the US about to ramp UST10Y? This could stifle the economy.

The trend in the dollar is obvious..

SPX500 (monthly) RSI (14) prints at near extremes, but it’s “justified”— no it’s not. Hype and hope will fade lead to a disappointment phase.