SPX Down, DXY Flat, WTI Up

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

In late April and early May, Trump has managed to go a few weeks without significant controversy, a long time period for this administration. Well, that all changed prior session after-hours, when Trump fired FBI Director James Comey. According to Alastair Williamson, “Trump’s political currency has been drained, which has implications for the implementation of his future policies”. This could not come at worst time for US markets, as the reflation trade was starting to regain traction with DXY 99.56 and UST10Y 2.378. The increase probability of deadlock and turmoil in Washington has surged overnight. There is no doubt that US Futures and global markets are mixed on the Comey event, but we have recently turned our attention to China’s debacle. According to a reply from Zerohedge’s editor, “shadow banking crackdown; iron ore glut; commodity liquidation to fund margin calls” is the main focus in China. The spillover has sent SCHOMP -90bps overnight and CN10Y edging higher 3.489 level. All of this does not support the view that US Trumpflation will have an easy pathway ahead. With central banks suppressing volatility with the VIX in single digits, there is a strong probability of system failure heading into the summer period.

Key Headlines from

  • Trump fires FBI director James Comey, citing need to restore ’trust and confidence’
  • Pentagon urges North Korea to ’refrain from provocative actions and rhetoric’
  • ECB Analysis Paper: labor-market slack might be closer to 15%; this is likely to continue to contain wage dynamics
  • France March Industrial Prod. y/y: +2.0% vs +0.6% est.; Italy +2.8% vs +2.5% est.
  • BOJ’s Kuroda: annual JGB purchase rate is now approximately JPY60t
  • China April CPI 1.2% vs 1.1% estimate; PPI 6.4% vs 6.7% estimate
  • Kuroda: Watching effect of FX changes very carefully; weak yen boosts corporate profits

US Event Calendar

  • 8:30am: Import Price Index MoM, est. 0.1%, prior -0.2%
    1. Import Price Index ex Petroleum MoM, est. 0.1%, prior 0.2%
    2. Import Price Index YoY, est. 3.6%, prior 4.2%
    3. Export Price Index MoM, est. 0.2%, prior 0.2%
    4. Export Price Index YoY, prior 3.6%
  • 2pm: Monthly Budget Statement, est. $179.0b, prior $176.2b deficit

Fed Speakers

  • 12pm: Fed’s Rosengren to Speak on Economy at Vermont Business Group
  • 1:20pm: Fed’s Kashkari Holds Q&A at Minnesota Business Ethics Awards

After review the specific regions around the world verse the SPX500. The most alarming region in Asia and to be exact is the massive negative divergence in the SCHOMP.

The typical European pump overnight in US reflation, SPX500, and Oil crashed down about an hour later. The second attempt is being tried heading into the 8am est. hour. We advise caution in the US cash session with after-hours prior session market generated information pertaining to Comey has not yet been fully digested.

The reflation trade has been in the process of unwinding post March 2017 rate hike.

On a 30min timeframe, the US reflation trade with SPX500 and Oil has stalled after it’s latest push. China’s CN02Y and CN10Y continue to advance with an unwinding SCHOMP. Over in the EU, regional bond yields and equity indexes stall with a declining EUR/USD. In Japan, Nikkei225 and USD/JPY are in an upward trajectory, but have recently stalled.

The most important story in Forex is the dollar demand surge in recent sessions.  What’s next for the dollar is possible resistance at midpoint of the 99 handle.

Prior session API Estimates (in mbbls) for Week Ending May 5, 2017 provided by @EnergyBasis

Current US Rig Breakdown provided by @EnergyBasis

Major Commodity Indexes under stress from China’s unwind. Signaling deflationary trends.

WTI monthly/weekly R1 55 overhead unlocking overhead supply with pivot 44.81 reversion. Monthly 320sma 47.59 significant line in the sand.

UST10Y monthly/weekly R1 2.63 resistance with pivot 2.13 reversion. Minor counter trend with next resistance level 2.45.

DXY monthly/weekly pivot 99.26 spring up back into bracket as a probe. The question is how much time will DXY spend in bracket.

SPX500 monthly/weekly R2 2398 resistance

CRB Index monthly/weekly Pivot 181 downside break with S1 164 projections