MACRO MORNING NOTE January 11, 2017

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

Asia-Pacific stock markets closed lower on Thursday following a mixed environment from Wall Street. The biggest losers were Nikkei225, New Zealand Index, and ASX200.

Asia stocks were mostly down for the second consecutive session, continuing a global pullback from multi-year highers.  The most notable move was in New Zealand’s NZX-50 closed down -1.40%, tagging levels not seen since March. Over in Japan, the Nikkei225 declined -.33% at 23,710, with major exports on the weak side. In Korea, the KOSPI declined -.47% at 2,487, as electronic companies fell under pressure. Australia was down as well, the ASX200 declined -.48% to close at 6,067 with most sectors under pressure.

Greater China stock markets were flat. Hong Kong’s Hang Seng flatlined around the 31,000 handle. Mainland stocks closed in a somewhat positive territory, with the Shanghai Composite eeked out .11% gain to close at 3,425. The Shenzen closed slightly higher, but the blue-chip CSI 300 index was flat.

Japan’s stock market decline has been contributed to a stronger Yen. The JP10Y prints at .069 following comments from the BOJ may be cutting back asset purchases on Tuesday. A reversal in policy or just simply a taper could produce headwinds for asset price appreciation.

Via Fox Business,

Asian stocks have been benefiting from recent commodity-price gains, but there is now “a bit of caution” about equities valuations, particularly in the wake of the yen’s gain, said Vishnu Varathan, a senior economist at Mizuho Bank.  

In the last 24 hours after the BBG headline detailed China would “slow purchases” of USTs, Chinese media have now said the initial report is “fake news.” The initial headline early yesterday morning sent USTs rocketing higher to 2.599, near a breakout level of 2.64, which would mean a quick move to 3%. Before the initial call, Bill Gross called the bond bear market and Gundlach said UST10Y over 2.64 would be bearish for stocks. Perhaps, the initial headline was a trial balloon or a warning to Washington that China is not going to pay for tax cuts. Nevertheless, it has surely contributed to bond market panic on top of the BOJ reduction of asset purchases.

In commodities, WTI tags the 64 handle overnight advancing nearly +.82%. A few days back we started building our short position at 62 and perhaps hoping for an unfair high in the near term. NatGas could get a boost with colder temperatures on the East Coast forecasted to dip after the weekend storm. Copper has stalled after a +13% short cover from mid-Dec’17. Gold and Silver are performing well with a flat dollar. Overall, industrial metals and commodities as a whole have stalled adding into question if the global growth rally is sustainable. Mostly it’s based on the commodity cycle, which mainstream analyst are calling for a big revival.

GSCI Precious Metals and Industrial Metals; CRB Commodities Index.

Glancing at <OVX> oil’s volatility

No breakout in commodities, yet…

Positioning in WTI is extreme

Dow Jones Real Estate breaks base line of growth

5th time this has happened in 30 years 

S&P500 divergence vs. HY is wide 

VIX close <10, today is an outlier and adds validity to the short vol portfolio at NYFED (Simon Potter)…

The move in UST10Ys above 2.64 would signal a 3% jump quick.

Major weakness in XLU

Copper/Gold Ratio overlaid with UST10Y

CRB/SPX500 No upward signal yet

World Stocks (monthly) RSI (14) 82.56

Breadth Weakness in S&P500