SPX Flat, DXY Flat, WTI Down

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

The main event overnight was the -350bps flash crash in WTI to the 43 handle. A Chinese commodity rout continues with Iron Ore futures -600bps, coking coal -400bps, and rubber -300bps. Both Shanghai and Hong Kong 33 are under pressure with regional bonds surging. In Japan, markets are flat recovering from the overnight oil flash crash. Alastair Williamson on the Baltimore Desk stresses that “the recent commodity selloff is the single most important event to date. The stress is originating from China as authorities tighten the screws on credit. The US plunge protection team is in full swing protecting equity indexes, meanwhile commodities plunge”. Looking ahead, the Change in Non-farm Payrolls is expected to be the main event entering the US cash session. Estimates are 190k with prior 98k. Here are the expectations from big banks:

Payrolls Expectation by Bank:

  • Barclays: +225K,
  • Bank of America: +170K,
  • Goldman Sachs: +200K,
  • SocGen: 165K,
  • UBS: +210K,
  • Wells Fargo:+178K,

Alastair Williamson’s guesstimate on today’s NFP is +125. He highlights the trend is your friend on a 5-yr timeframe. 

Prepare for Central Banks Speak: 

  • 11:30am: Fed’s Fischer Speaks at Hoover Event in Stanford
  • 12:45pm: Fed’s Williams Speaks in Keynote in New York
  • 1:30pm: Fed’s Rosengren, Evans and Bullard on Hoover Institution Panel
  • 1:30pm: Fed’s Yellen Speaks at Brown University

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 190,000, prior 98,000
    • Two-Month Payroll Net Revision
    • Change in Private Payrolls, est. 190,000, prior 89,000
    • Change in Manufact. Payrolls, est. 10,000, prior 11,000
    • Unemployment Rate, est. 4.6%, prior 4.5%
    • Average Hourly Earnings MoM, est. 0.3%, prior 0.2%
    • Average Hourly Earnings YoY, est. 2.7%, prior 2.7%
    • Average Weekly Hours All Employees, est. 34.4, prior 34.3
    • Labor Force Participation Rate, prior 63.0%
    • Underemployment Rate, prior 8.9%
    • 3pm: Consumer Credit, est. $14.0b, prior $15.2b

Overnight Commodity Rout in China reported via @YuanTalks 10hrs hours ago: Check out #commodity market in #China. #IronOre futures still trading over 6% lower, coking coal 4% down; #Rubber over 3% lower.

China’s authorities tightening the screws on credit is forcing their shadow banks to unwind the commodity trade. Forcing the next deflationary trends in major commodity indexes including <CRB> and <BCOM>.

Global Credit Impulse went negative for 2017. The Chinese credit impulse since 2013 has been widely responsible for global reflation. Expect lower commodity prices and slower global growth into the second half 2017.


via Hedgeye

  • U.S. Economy: “We’re going to see the economy fade in the second half. You don’t have a lot of demand. I think you’re going to see volatility in that GDP series again.”
  • Trump, Protectionism & American Workers: “Wilbur Ross wants to be able to tell the constituents of Donald Trump that they have done what they set out to do, which is to make it fair to American workers. Having said that, the answer is to make American workers more productive, so they can do things where they get paid more money.”
  • The Fed: “The system needs to deflate. The great fallacy of the central banker is that you can somehow prevent the system from re-adjusting after a great period of excess. The answer is no you can’t.”
  • Tax Reform: “I don’t think there’s much chance that what Trump’s put out there is going to get enacted because even though Republicans want growth they are not going to blow out the budget numbers. The Conservatives in the House won’t allow it.”
  • Offshore Financial Transactions: “Over the last 30 years, U.S. corporates have probably deprived the Treasury of $10 trillion worth of taxes.”

Over in China, the commodity rout and credit tightening is forcing regional equity indexes lower with rising gov’t yields.

Spilling over into Australia, ASX200 and AUD/USD are suppressed on falling commodity prices.

In Japan, the Nikkei225 and USD/JPY fell then recovered on the oil flash crash.

Much of the same in Europe and US, plunge protection team has elevated equities ignoring major moves in the commodity complex. Major events over the weekend include the French Elections.

Overnight commodity crash crushed Oil, SPX500, and USD/JPY. The European session has forced a V-Shape recovery.

The overall reflation trade is unwinding with the dollar and oil. UST Yields remain elevated which is what SPX500 is pinned to. Dangerous combination for SPX500 to totally ignore the dollar and oil.

UST10Y monthly/weekly R1 2.63 resistance with the attempt to counter trend on an overall pivot 2.13 reversion.

Copper monthly/weekly R1 2.70 resistance unlocking overhead supply forcing a pivot 2.39 reversion.

Iron Ore monthly/weekly unlocking overhead resistance with completed pivot reversion risk S1 48 migration.

WTI monthly/weekly pivot 44.81 breached overnight. We will reassess the next projection.

US Dollar monthly/weekly rejecting pivot 99.26 risks downside imbalance with a projection S1 944

SPX500 monthly/weekly R1 2398 resistance