MACRO MORNING NOTE January 19, 2017
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland
Regional stock markets in Asia closed Friday with moderate gains, despite the looming threat of a government shutdown in the United States. Overnight, WTI tumbled to the 62-handle but has since recovered, with pricing stalling in the 62.50 to 64.80 level. The dollar remains suppressed now -.20% at 90.31, as the risk of a government shutdown flourishes. In UST yields, the UST10Y nears the critical 2.64 breakout level at 2.631, which could indicate a quick move up in rates. Higher rates would be detrimental to the economy and even the stock market.
Our audience is split on a government shutdown, while we think it is a high probability.
— Alastair Williamson (@StockBoardAsset) January 18, 2018
Starting in Asia, the Nikkei225 closed higher +.19% at 23,808. Financials and exporters led the way higher with a stronger Yen. In South Korea, the KOSPI closed slightly higher +.18% at 2,520. Automakers were higher, but the technology sector was fairly weak. In Australia, the ASX200 declined -.15% at 6,005. Major mining and energy companies were lower, following a commodity upward cycle that is stalling. This could be a telling sign that a slowdown in China is nearing, despite the popular narrative of a red-hot economy.
Hong Kong’s Hang Seng index closed flat. Property developers and real estate companies ended at record gains. On the mainland, the Shanghai composite closed higher +.41% at 3,489. The index tags levels not seen in two years after Thursday’s growth perspective for the country increased. All built on high amounts of leverage…
Today’s binary event in the United States is the government shutdown. U.S. stocks closed lower in the prior session, but futures remain very positive in the 6 am est. The immediate focus for today is if the U.S. Congress can pass a stop funding gap. The House passed a spending bill on Thursday, but it is uncertain how the Senate will play out. Our sources tell us that it is a very high probability that a shutdown could occur.
Taking a look at commodities, GSCI precious metals continues to compress, GSCI industrial metals stalls and the CRB index proves a neckline.
Taking a look at the UST10Y, the benchmark probes 2.632 which would indicate a breakout could be nearing. If so, measurements on the breakout could be 3 to 3.30. This would stifle the economy and possibly lead to a decline in stocks. Many factors pushing up yields from domestic to foreign, but a lot of the factors support higher yields.
Taking a look at yields plus yield curve 2s10s
UST10Y ignoring the Copper/Gold Ratio
VIX over the 320sma (daily)
CRB & BCOM (monthly) <50sma
World Stocks stupidly overbought
S&P500 valuations stretched
Stocks over 50ema for small, mid, and large cap very weak
SPY/VIX Ratio At or near extremes
US Real Estate very weak
DXY Linear down move. If 90.82 rejects, then a move to 87.79.
WTI is stalling
UST10Y, if 2.64 breaks then 3 to 3.30 could come quick
Bitcoin, watching the pivot 11,432
CRB probing R1
SPX500 one of the highest RSI prints ever