MACRO MORNING NOTE January 29, 2017

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

Regional stock markets in Greater China closed lower after an official on China’s National Development and Reform Commission wrote an op-ed warning about stock market black swans Reuters reported. On the mainland, the Shanghai closed lower -.97% at 3,523 and the Shenzen composite tumbled -1.56% at 1,919. The CSI index also lost -1.81% by the end of the session. Hong Kong’s Hang Seng index closed lower -.51%.

The fall was likely due to “a bit of intra-day profit-taking after such a great start to the year,” said Andrew Clarke, director of trading at Mirabaud Asia.

In Japan, the Nikkei225 closed out flat at 23,629, with automakers and energy stocks helping to stabilize the market. South Korea’s KOSPI climbed +.91% to close at 2,589, following positive sentiment in big tech names. In Australia, the country is back from a holiday, regional stock markets closed higher with ASX200 up +.42% at 6,075.

As a whole, Asia is starting to pull back as China regulation fears spark selling in major indexes. Over to Europe, regional yields are soaring with regional stock markets lower. The CAC40 is flat at 5,526, DAX is lower -.58% at 13,309, and the UK100 is lower -.20% at 7,673. The EUR/USD continues to print in the 1.24 handle as the dollar stabilizes in the 89 handle, following last weeks tumble by comments from Steven Mnuchin.

In the U.S., UST yields are rocketing dangerously higher which is concerning. The benchmark prints UST10Y prints at 2.724, as the breakout has already started with a clear path to 3 to 3.30%. This could shock markets as a quick move up in rates is negative for a highly leveraged economy. No one seems to care about the dollar and bond selloff that is widely negative for the U.S. economy despite popular beliefs. The surge in yields could prick the low-vol bubble in markets leading to a period of heightening vol. Further, interest rates industries would see pressure and possibly a deleveraging in risk parity selling stocks.

The US Economic Calendar:

What you need to know:

  • 10-year Treasury yield hits a three-year high
  • German five-year Bund yield briefly tips into positive territory
  • Dollar steadies against peers, following turbulence during Davos
  • European markets dip after Friday’s record Wall Street close B
  • rent crude holds above $70 mark after touching $71 last week
  • Gold down from last week’s 18-month high

“After a week dominated by Davos and the dollar, more domestic politics may affect markets: for example on Monday the EU will publish its directives for negotiating a transitional arrangement, signalling the start of the next phase of [Brexit] negotiations,” says Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

“As the US bond yield hovers below key chart points, so the signals from the forthcoming Fed meeting and the wages data in the often-influential payrolls report become even more important.

“120 companies are due to report in the coming week; although a lot of the good news from the US tax cuts has been priced into the stock market, there is plenty of room for upside when analysts are pleasantly surprised by some of the statements from management.”‎

UST yields surging in the U.S.

In commodities, WTI is under pressure down -.69% at 65.76, as the dollar attempts some upside at 89.27. Gold and silver are fading from last week’s highs, as a slight bounce is seen in the dollar, but still, unbalanced auction favors sellers. Industrial metals continue to stall this month, with copper at 3.20, failing to break above 3.30. The global synchronized growth narrative is built on the commodity upcycle forced by central bank money printing.

To sum up the U.S., UST yields are rocketing higher, the dollar is stagnating at 89 handle, S&P futures are selling, and oil is now rolling over.

Weather risks for the East Coast

WTI resistance at monthly 200sma 65

DXY S2 87.79 support, the auction is still weighted towards sellers.

CRB R2 215 resistance or R1 fades

Bitcoin pivot 11,432 needs at acceptance or rejection for signals of next imbalance

UST10Y rocketing higher with 2.93 R3 upside projection

SPX500 R2 2818 or R3 2994 blowoff top