MACRO MORNING NOTE January 08, 2017

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

FT’s What you need to know:

  • Bourses make further gains in European trade, with Stoxx 600 at 2-year high
  • Hopes for synchronised global growth underpin strong sentiment
  • Asia equities mixed after last week’s surge
  • Australian gold producers down as commodities rally cools

Starting in Asia where stocks closed higher on Monday, following Wall Streets positive session last Friday. Australia’s ASX200 gained +.13% to close at 6,130. South Korea’s KOSPI closed higher +.63% at 2,513 after an earlier decline in the session. Autos, retailers, and trading services closed higher in the session, with a mixed environment in technology.  Greater China markets traded higher on the session thanks to property companies. The Hang Seng Index closed flat on the session, recovering from earlier losses. In mainland stocks, the Shanghai Composite climbed +.54% to 3,410 and the Shenzen closed higher +.22% at 1,945. Broadly speaking, MSCI’s Asia Pacific index ex. Japan closed higher +.33% to 591.

Last week, only 148,000 jobs were added in the United States in December, compared to the 190,000 estimate from Reuters. This could indicate a slowdown in job creation in the region and further point to the stability of ‘full employment’ narrative possibly cracking. The dollar caught a bid this morning +.24% at 92.24, with the UST10Y treading water at 2.48. The reflation trade has seen a mixed picture so far this year, with the UST10Y rising as the dollar is in decline. 2s10s remain flattening, causing some to question the reflation narrative.

European stock markets advanced on Monday with an EUR/USD at 1.19 handle. The resource industry is higher in the late morning amid new trading partnerships with China. Postive global sentiment continues to drive regional markets in the Eurozone, but frankly, it’s due to higher levels of Central Bank intervention. The DAX is higher +.31% at 13,379, the IBEX35 gained +.33% at 10,445, and the UK100 is flat at 7,723. The EUR/USD is weaker at 1.9875, as the dollar catches a slight bid this morning.

In commodities, WTI is higher but has stalled in the 61-62 range. As we’ve mentioned before, we continue to wait for a short thesis to build, however, stress the downward trajectory in the dollar is currently helping commodities. Industrial metals have stalled in the recent week, which has us questioning the global synchronized rally narrative. The CRB index attempts to break a multi-year neckline, still, the neckline could be a serious line of resistance.

CRB Index- The R1 196 has produced sustainable resistance, but in recent times has been probed thanks to a dollar decline. Neckline in test and if failed, the correction in commodities could revert back to pivot 185.

WTI- Serious resistance at 61-62, which has not been seen since 2015. We’re developing a short thesis at these levels.

UST10Y- The pattern in setup is called a ‘top bump and run formation’. The risk of a bump is a high probability that could signal a breakout to the upside.

DXY- 5 to 6-month bracket rotations with the risk of further downside.

SPX500- Pivot was shifted higher, now watching R1 2,711 for an acceptance or rejection.