MACRO MORNING NOTE January 12, 2017

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

Asia stock markets end the week on a positive divergence verse Japan, while Hong Kong continues a record winning streak.

The dollar continues its death spiral probing lower -.55% at 91.39 with the expectation of the next support is 87.50. The EUR/USD extends gains well into 1.212 level. The EURO advanced due to ECB proposed roll back its extreme monetary policy, which is the rocket fuel for risk assets. Can you guess what happens next? 

Regional stock markets in Asia-Pacific closed higher on Friday with high volumes in HK and Korea, but stronger Yen closed the Nikkei225 well into the red. Asia Shares ex-Japan closed higher +.80% following two sessions of declines after data from China’s exports rose 10.8% in 2017.

“The market is still riding on the global positive sentiment,” said Jackson Wong of Huarong International Securities in Hong Kong, where the Hang Seng index is at an all-time high. “The momentum actually is quite strong,” he said. Clients “are quite optimistic that the market will continue to go up, however, they are not as aggressive as before,” given the recent gains.

China’s trade data cooled in December warning of weaker global and domestic demand, but last year’s total exports rose 7.9% verse 2016 while imports gained 15.9%, according to the latest trade data. Economic growth is expected to cool as Beijing tightens conditions on credit to slow the debt binge, which we think could reverse the commodity move.

Japan’s benchmark Nikkei 225 index lost 0.2 percent to close at 23,653.82, pressured by the yen’s recent strength, while South Korea’s Kospi advanced 0.3 percent to 2,496.42. Hong Kong’s Hang Seng surged 0.9 percent to 31,412.54 and the Shanghai Composite index added 0.1 percent to 3,428.94. Australia’s S&P/ASX 200 gained less than 0.1 percent to 6,070.10. Shares were higher in Southeast Asia and Taiwan.

Much of the global growth narrative has to do with the commodity cycle. As a whole, we do not see a breakout in commodities, as per the CRB index has not violated 196 neckline.

Nevertheless, violated a long-standing supply line exerting downwards from 450-475 level. In essence, commodities as a whole are not rebalanced as of yet.

Industrial metals and CRB have stalled in recent times, as precious metals compress before the next major move. Industrial metals weakness in January could be a telling sign that weakness in China is evident.

The wild ride in UST yields this week after China says no more buying U.S. debt, then quickly reverses the initial claim. Perhaps, it’s a warning sign that Beijing does not want to finance fiscal stimulus.

Meanwhile, Bill Gross calls the bond bear market and Gundlach thinks UST10Y >2.64 will be negative for stocks. If 2.64 breaches, there could be a quick move to 3% to 3.3%.. With BOJ tapering, China not buying USTs, and Trump’s fiscal stimulus, it’s a perfect scenario for higher yields to choke the economy.

China has said this before…

1986 tax reform led to 1987 crash

Massive negative divergence in Corporate Tax Receipts

The damage has been done to the bottom 90%

East Coast Storm this weekend followed with colder temps; a positive for natural gas prices.

Dollar declines are ugly, and we continue our bearish stance into the 10-month.

Overnight action, well, for the most part, the dollar is ignored.

Bearish shooting star print on WTI

US Real Estate breaks 1q16 baseline of growth

No confirmation in CRB/INDU Ratio

No commodity reversal confirmed

World Stocks are extremely overbought, but this is the time to figure out what could break this linear system.

BDI negatively diverges SPX500

Unemployment Claims >50sma

Warning from URE/REK Ratio

<VNQ> Vanguard REIT breakdown