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MACRO MORNING NOTE JANUARY 31, 2017

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

What you need to know via FT:

  • Dollar under broad pressure ahead of first Fed policy meeting of 2018
  • Euro and pound continue to rally against the dollar, renminbi makes notable gain
  • Pace of equity sell-off cools in Asia, European bourses inch lower
  • Bond rout also slows, with US 10-year yield down 1.6 basis points
  • Oil price fall weighs on energy stocks

“All ears and eyes on Wednesday will be focused on rhetoric from the Federal Reserve. While we don’t expect a move from the Fed this week but there’s been nothing in the data to suggest to us that the Fed won’t feel ready to increase interest rates again in March,” says Seamus Mac Gorain, senior fixed-income portfolio manager, JPMorgan Asset Management.

“The Fed has been tightening for two years now, but over that period US financial conditions have eased significantly, and especially this year, driven by soaring stock prices, strong credit markets, and dollar weakness. Buoyant financial markets give the Fed room to increase the pace of policy tightening.” We must add, the idea behind the easing of financial conditions comes at the expense of balance sheet expansion by BOJ and ECB.

S&P futures are higher +.34% to 2,831, following a -2% decline since Sunday evening. The trend has included a bond, dollar, oil, and stock selloff all in tandem. Global stocks as a whole are mixed with Asia and Europe lower. UST yields in the U.S. are surging with the benchmark UST10Y at 2.708, which a clear of 2.734 could open up 3 to 3.30%. As rates increase, the low vol strategy unwinds as risky parity funds deleverage sending VIX as higher at 15. WTI has tumbled -4% since last week, as API printed another build this week. Cryptos halt selling overnight, as Asia and Europe provide bids. As for the dollar, the Trump admin with Mnuchin flipped flopped on policy and have discredited themselves in the short term. Many attempts to reverse the dollar trade via the admin have been seen in headlines, but a reversal so far has failed.

Most Asian stock markets closed lower on Wednesday, following another round of deleveraging in Wall Street fading from all-time highs. Japan’s Nikkei225 closed lower for the sixth straight session, as the BOJ freaked out once more about JP10Y nearing the .10 line. According to BBG, the BOJ stated overnight that they will be able to buy more bonds to halt rate rises. It shows that central banks are starting to lose control of the long end of the curve, which has sent yields around the world surging. This is not good considering the amount of leverage in the system. Across the Korean Strait, the KOSPI closed flat with some gains in heavily weighted tech names. In Australia, the ASX200 advanced +.25% to 6,036, despite a weak commodity complex. The Hang Seng index rose +.86% to 32,886 with financial stocks leading the charge. In Mainland China, the Shanghai Composite closed lower -.19% along with the Shenzhen lower -1.66%.

Overnight, President Donald Trump’sState of the Union bumped the S&P500 futures slightly higher, but there was no noticeable movement in the dollar.

“The combination of profit taking into month-end, higher bond yields, stretched valuations and potential U.S. health care shake-up were the main drivers,” analysts at ANZ Research said in a morning note.

Dow Theory signaling weakness

SPX500 PMO about to signal a bearish crossover

Risk of a false breakout in commodities?

Central Banks have supercharged global stocks. RSI on monthly is at 84, this is not sustainable…

The US and Chinese stocks moving in tandem

The US HY and International HY weakening

NYAD cumulative index, a very rare break <25sma

Risky Parity Fund <AQRIX> tags upper channel

Valuations in S&P500 are very overstretched in an environment of rate increases

Internal breadth of the market is rolling over

S&P500 real estate index breaks support

Upside targets on UST10Y

Long-term trend violated on UST10Y

<VNQ> Reit index weekly violates <100

Volatility across the board has risen