SPX Flat, DXY Down, WTI Up

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

The main event is the OPEC jawboning via Saudi and Russian energy ministers favoring a 9 month extension on cuts through the end of 1Q18. WTI +310bps probing into the lower 49 handle as market manipulation has forced a short cover. This OPEC and Non-OPEC market generated information overnight is a stark reminder that the oil market is far from balanced and it’s favoring a shale revival. One thing that central banks and OPEC cannot fix is global oil demand faltering at an alarming rate for the 2017 timeframe.

Meanwhile, overnight macro events in China point to a slowing economy with China credit impulse negative for 2017, along with tighter monetary conditions. Bloomberg’s David Ingels has a chart describing ‘peak China’: 

Weekend note from CITI describes four major warning signs about China:

  • The Markit PMI is starting to turn over
  • China’s Inflation Surprise Index – a leading indicator to global inflation metric – has posted a recent sharp drop
  • China’s import trade has likewise tumbled after surging recently
  • Chinese Iron Ore imports into Qingado port have plunged

For the month of April, Chinese data misses across the board:

  • Fixed Asset Investment 8.9% Y/Y, Exp. 9.1%, Last 9.2%
  • Retail Sales 10.7% Y/Y, Exp. 10.8%, Last 10.9%
  • Industrial Production YTD 6.7% Y/Y, Exp. 6.9%, Last 6.8%
  • Industrial Output 6.5% Y/Y, Exp. 7.0%, Last 7.6%

At a time where global credit impulse is negative for 2017, but most importantly China. There is a concern for a global slowdown on the horizon with weaker commodity prices. It seems if central banks are unable to produce sustainable growth with the quick rotations from inflation to deflation with a rinse and repeat mode. The word has watched Trump struggle to get his infrastructure stimulus underway and with the latest slowdown in China this could allude to a slowdown entering Fall 2017.

Global stocks and US equity futures are mixed across the board with limited reaction to the OPEC and Non-OPEC WTI pump in WTI futures. Last Friday’s soft US CPI and retail sales data, plus the earnings decline in major retailers is acting as an overhang this morning. US reflation trade has stalled with the dollar not making new highs probing lower into the 98 handle. UST yields were pumped into Asia and Europe, then dumped in the 4am est. hour. Overall, reflation narrative is on shaky grounds with Trump struggling to get fiscal stimulus underway and the recent commodity meltdown stemming from a deleveraging China.

On a 30 minute timeframe, China, EU, Japan, and US are overlaid with currencies, commodities, equities, and yields. Starting with the US, SPX500 ignores a negatively diverging reflation trade correlating with a Saudi OPEC and Non-OPEC pump in WTI. In China, HKG33 ramps with CN02Y and CN10Y, while a negatively diverging SHCOMP correlates with CNY/USD. In the EU most everything has some type of ascending trajectory. Reflation trade in Japan is starting to become laggard with Nikkei225 and USD/JPY in resistance. Kuroda needs to start buying more ETFs.

The main idea in forex is dollar demand lags with a high 1.09 handle probe in the EUR/USD.


Recent weeks and months in the commodity patch have been fairly negative with China deleveraging and Trumpflation faltering. Oil is probing higher on OPEC and Non-OPEC comments. Dollar demand lags this morning with Gold and Silver finally making a bid. Base metals such a Copper is +100bps probing into the 2.54 handle. CRB Index is reversing after violating the daily 200sma back in April 2017.

Major commodity index daily timeframes attempting reversals after Oil is rescued by comments overnight.

WTI monthly/weekly R1 55 overhead unlock with pivot reversion successful. Now OPEC and Non-OPEC jawboning on Pivot 44.81 with upward probe into 49 handle. The idea is how long will the probe last with upside 49.86.  If 49.86is violated to the upside the next resistance 53 mean of 50-55 bracket will test and either be accepted or rejected. The physical market is not rebalanced and we believe this is just another OPEC forced countertrend similar to the 59 tomahawk missiles back in late March. ‘Not sustainable’ 

UST10Y monthly/weekly R1 2.63 resistance with pivot 2.13 reversion. Upside is fading with 2.37 resistance.

US Dollar monthly/weekly pivot 99.26 rejecting with downside projections S1 94.78.

SPX500 monthly/weekly R2 2398 resistance.

CRB monthly/weekly regaining pivot 181 on OPEC headlines. Now neutral with pivot support.