MACRO MORNING NOTE January 26, 2017

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

“The market is underestimating the bond and dollar selloff in the United States. Further, traders are overlooking the move up in gold and silver, with the understanding volatility is creeping back in. This is not good. Mnuchin’s sloppy comments to bash the dollar is the wrong policy if this administration wants to blow out the deficit. Basically, Trump walking back Mnuchin’s comments have questioned consistency going forward of top U.S. officials,” said Alastair.

The MSCI world equity index, which tracks stocks in 47 countries was down -.01% overnight, though it has set the 10th weekly advancement. European shares are mixed, despite some deal-making early in the session. The CAC40 is +.82% at 5,526, DAX is -.16% at 13,294, and UK100 +.25% at 7,649. Exporters in the region have been punished on EUR/USD rally into the midpoint of the 1.24 handle, meanwhile, prior session, Draghi was Dovish at an ECB meeting in an attempt to arrest the EURO.

Asian stock markets closed mixed on Friday, as the dollar failed to break up following President Trump’s dollar comments of reversing Mnuchin’s weak dollar comments a day before. What a mess. How can this administration sell bonds and blow out the deficit with a weaker dollar? It is like telling future bondholders, you are going to lose if you buy U.S.  debt.

In Japan, the Nikkei225 closed lower -.16% at 23,631, as major exporters finished mixed while financials declining. As the dollar gets crushed, the Yen strengthening has become a headache for the BOJ. In Korea, the KOSPI reversed earlier losses and closed higher +.49% at 2,574. Auto and tech stocks were mixed on the session, perhaps, because of forex shifts with a weaker dollar.

In Hong Kong, the Hang Seng advanced +1.51% after consecutive gains for 7 sessions ended on 1-24. Gains in financial services and a tech heavyweight Tencent helped the overall index. The Shangia composite closed up +.3% to 3,559 and the Shenzhen composite finished lower -.16%. Markets in Australia were in holiday session.

CNBC explains the Trump’s administration screw up on the dollar, 

The dollar was slightly pressured after edging higher overnight on comments from Trump that he “ultimately” wanted a strong dollar. He added that U.S. Treasury Secretary Steven Mnuchin’s comments about the currency had been “taken out of context.” Mnuchin’s Wednesday comments about a weaker dollar being good for trade saw the currency plunge to a three-year low earlier in the week.  

“While President Trump’s comments prompted a short covering rally in the U.S. dollar, they won’t have alleviated investors separate concerns about recent belligerent US rhetoric on trade,” said Michael Hewson, chief markets analyst at CMC Markets in London. 

“Trump did say he wanted a stronger dollar, but at the same time made no intention of changing his stance towards pursuing U.S. interest through trade policies,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“Comments from U.S. top officials regarding the dollar are likely to continue lacking consistency going forward,” he said.

“Help from the Federal Reserve would be needed to weaken the dollar. But right now, the Fed is in midst of raising interest rates and this is not conducive to a weaker currency,” said Makoto Noji, senior strategist at SMBC Nikko Securities in Tokyo.

In commodities, WTI +.64% at 65.63 trying to recover from losses prior session, after Trump’s short cover in the dollar comments. Copper is slightly higher at 3.218 but has stalled in the prior weeks. Gold and Silver fade from highs put in the prior session on Trump dollar comments.

Trump: Market would be down 50% if Hillary had won… don’t think so, central banks got this under control

Transports lagging

CandleGlance of Major US Indexes 

CandleGlance of US Treasury Bonds: UST yields at levels not seen since Trump was elected. The market is underestimating the bond and dollar selling.

CandleGlance of S&P Market Capitalization

Airlines slaughter

REITS not so hot with higher rates

World Stocks overbought

Breadth of market is weak

UST10Y looks like it is about to blastoff

Vol creeping back in