[stock-ticker]

MACRO MORNING NOTE January 10, 2017

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

According to sources familiar with the matter, Chinese officials have said FX holdings will be slowing or halting the purchasing of US Treasuries:

  • CHINA OFFICIALS ARE SAID TO VIEW TREASURIES AS LESS ATTRACTIVE.
  •  CHINA OFFICIALS SAID TO RECOMMEND SLOWING OR HALTING TSY BUYING

As per Zerohedge,

The reasoning given is that the market for US government bonds is becoming less attractive relative to other assets, and trade tensions with the US may provide a reason to slow or stop buying American debt. As Bloomberg further notes ‘The people didn’t specify why trade tensions would spur a cutback in Treasuries purchases, though foreign holdings of US securities have sometimes been a geopolitical football in the past.’ Some are interpreting this as the authorities wanting to send a signal to the US that they are willing to use financial means to respond to any shifts in US policy on issues such as trade.  

In response, the entire treasury complex in the United States has sold off, forcing bond yields even higher with the benchmark printing as high as 2.595.

S&P500 futures are down -.30% at 2,741 selling alongside bonds. The dollar is lower -.48% at 92.07 and the funding FX USD/JPY has been smacked -1% to 111.500. Meanwhile, Gold erupts +.84% to 1,323 and silver higher +1.27% to 17.157. In the past few sessions, industrial metals have stalled, which has signaled the global growth rally narrative is running out of steam.

Furth Zerohedge notes,

The reasoning given is that the market for US government bonds is becoming less attractive relative to other assets, and trade tensions with the US may provide a reason to slow or stop buying American debt. As Bloomberg further notes ‘The people didn’t specify why trade tensions would spur a cutback in Treasuries purchases, though foreign holdings of US securities have sometimes been a geopolitical football in the past.’ Some are interpreting this as the authorities wanting to send a signal to the US that they are willing to use financial means to respond to any shifts in US policy on issues such as trade.

Just yesterday, the BOJ announced the QE party was over sending yields in the region and the United States higher. The BOJ said that it will begin ‘tapers’ of its purchasing of longer-dated bonds. As shown by Wolfstreet.com, the party is over in Japan:

As yields shoot up in the United States, the dollar and S&P500 futures drop.

The BOJ is about to go in panic mode with JP10Y at .087… USD/JPY and Nikkei225 slammed lower.The party is over?

To Sum above, the global rally in stocks has been put on hold as traders digested a surge in bonds yields, as China said to halt purchases of USTs. With declining purchases by world central banks, skyrocketing commodities, and bond yields surging, this is a perfect storm to stifle the economy. Further, Trump’s fiscal stimulus could add additional pressure to rate rises.

In case you missed Jeff Gundlach’s presentation: 

Gundlach’s bearishness for bonds and stocks comes at a time where quantitative tightening could stifle the economy.

Gundlach says shrinking balance sheets of global central banks are not yet priced in…

Gundlach is watching the PMI next month for any type of weakness

Small Business Optimism Index (NFIB) at or near record highs

The last time this occurred it was DotCom

SPX500 divergence verse HY

Stunning number of days VIX below 10

What if the commodity breakout has yet to confirm?

WTI positioning at extremes

S&P500 Real Estate breaks trendline following interest rates surges

Is the UST10Y to go to 3%?

Interest rate surge is not good for real estate