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MACRO MORNING NOTE June 28, 2017

SPX Flat DXY Down, WTI Up 

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

S&P futures are slightly higher following a 4:30am est. ramp, as markets in Asia and Europe decline. Wall Street is still digesting Draghi’s hawkish comments, along with various Fed speakers attempting to arrest the risk-on in asset prices. Yellen was one of those speakers who said some asset prices have become “somewhat rich”. Then in our surprise, she says,”No financial crisis in our lifetime”. The comment in itself is reckless and should be grounds for expulsion. Meanwhile, the Senate delayed the US healthcare vote, which indicates not enough votes were obtained. This is yet another blow to the Trump fiscal trade.

The IMF has cut its US GDP forecasts to 2.1% in ’17 from 2.3%. In a statement, the IMF said it no longer assumes the Trump admin will be able to deliver on fisical stimulus measures. Reality sets in….

Some of the highlights from the IMF statement (zerohedge):

  • “The outlook is clouded by important medium-term imbalances. The U.S. economic model is not working as well as it could in generating broadly shared income growth”
  • “Real GDP is now 12 percent higher than its pre-recession peak, job growth has been persistently strong, and the economy appears to be back at full employment”
  • Fed should continue to gradually raise interest rates “in a data dependent way” and it must accept modest, temporary overshoot of its inflation goal
  • Fed must well-telegraph balance sheet reduction plans
  • U.S. needs lower tax rate, simpler system, fewer exemptions
  • “Tax reform should focus on increasing revenues- GDP over the medium term including through a broad-based federal level consumption tax, a carbon tax, and a higher federal gas tax”
  • U.S. can improve trade deals like Nafta also to the benefit of its trading partners
  • “The U.S. would benefit by remaining open as it pursues new or amended trade agreements”
  • Skilled-based immigration to U.S. can boost labor participation and productivity
  • Current financial regulation approach should remain intact
  • “There is scope to fine-tune some aspects of the system, notably to reduce the compliance burden for smaller banks. However, the current approach to regulation, supervision, and resolution should be preserved.”

Prior session, Conference Board Consumer data declines to 5-month lows. Yield curve 2s10s indicates that a rough patch for the consumer could be imminent into the 2H17.

The Fed is tightening its monetary policy and  hurling itself into balance sheet unwinds. This is a big threat to equities.

Asset valuations are not sustainable.

US Soft Data rolls over, as Hard Data collapses.

A deleveraging China will lead to slower global economic growth and lower commodities. 

Citi Economic Surprise Index (US) has crashed relative to KLSU DM index (foreign).

The Super Bubble is in trouble

Gold and Bitcoin the protection from a failing fiat currency

Subdued rate hike expectations, flattening yield curve.

small cap stock plunge continues, after wiping out $6.1bn yesterday
Recession signaling in China with yield curve inversion
2s10s and 2s30s weekly timeframes attempting to reverse
SPX500 monthly/weekly R2 2398 exhaustion with no upside targets. Waiting for blowoff top phase to tag unfair high, then start reversion to point of control 2090 on weekly.
DXY monthly/weekly new lows with S1 94.87 projections.
WTI monthly/weekly pivot 44.81 continues to reject with weekly reversal attempting. EIA 10:30am est. will be a deciding factor for this weeks close.
CRB Index monthly/weekly S1 165 projection
UST10Y monthly/weekly pivot 2.13 reversion completed. Compression in price awaiting major direction use 2.13 as line in the sand.