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MACRO MORNING NOTE NOVEMBER 22, 2017

S&P futures are flat this morning with Asian markets closed higher and European stocks mixed. The reflation trade stands with a lower dollar trading 93.81 -17bps fading from the 94 level and UST10Y 2.372. On Tuesday, long term UST yields declined, while short term UST yields rose. This is called ‘flattening’ trend and it’s usually present before an economic downturn as risk inflates short term debt yields. It doesn’t necessarily mean that recession is imminent, but should be closely monitored.

“We wrote about this some time ago, noting that [the flattening yield curve] was unlikely to be a reliable guide to looming recession risk, despite a slow drift of market names to embrace this view,” Rob Carnell, head of research for Asia at ING, wrote in a note. Carnell explained that at the long end of the yield curve, things are “remarkably stable.” He pointed out that changes were at the front end of the yield curve.

“And what appears to have driven this front-end rise is the final realization by markets that the Fed is not a “one and done” organization, but really will be following up the December hike with another, and then probably another next year,” he said. Carnell also pointed out that the market was previously “reluctantly pricing in tightening only one meeting at a time, being prepared to price the next hike slowly, only once the last one was safely in the bag.”

Starting in Asia, where markets on Wednseday advanced to record highs with tech leading the charge. Hong Kong’s main index topped 30,000 level at market open. In Australia, the ASX200 closed up +.38% at 5,986 with most sectors advancing follow good vibes in commodities this week. Japan’s Nikkei225 advanced +.48% to 22,523 despite a strengthening Yen. Over in China, the Shanghai Composite closed up +.59% to 3,430 and the Hang Seng traded above 30,000. Stabilization policy via the PBOC is certainly driving asset prices higher post October’s Communist meeting. The up move in the commodity cycle could nearing a top in the near term signaling that the ‘synchronized growth’ narrative is about to hit a roadblock into 2018.

“Markets have remained mostly range-bound ahead of Thanksgiving holidays, although there was a small easing in the dollar on a broad basis,” Wei Liang Chang, a currency strategist at Mizuho Bank, wrote in a morning note.

Shorter-tenor notes led the selloff in government debt on Monday, making the yield curve inversion the steepest since at least 2006, according to data compiled by Bloomberg (dated Oct 30).

Over to Europe, where stock markets are mixed DAX lower -.39% to 13,123, IBEX higher +.66% to 10,059, and UK100 higher +.43% to 7,445. The EUR/USD is slightly stronger to the midpoint of the 1.175 level despite the ongoing political crisis unfolding in Germany. For the most part, stock markets in the region steadied at 2 week highs following a move higher in Brent prices. API reported prior session a large draw in crude sending WTI to the high 57 handle. On an interesting note, utility, and oil and gas shares led the advancers, while tech and consumer services shares led the decliners.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 240,000, prior 249,000; Continuing Claims, est. 1.88m, prior 1.86m
  • 8:30am: Durable Goods Orders, est. 0.3%, prior 2.0%; Durables Ex Transportation, est. 0.5%, prior 0.7%
    • Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 1.7%; Cap Goods Ship Nondef Ex Air, est. 0.3%, prior 0.9%
  • 9:45am: Bloomberg Consumer Comfort, prior 52.1
  • 10am: U. of Mich. Sentiment, est. 98, prior 97.8; Current Conditions, prior 113.6; Expectations, prior 87.6
  • 2pm: FOMC Meeting Minutes

SPX500 advances with short dated yields and oil. Meanwhile longer dated yields decline with dollar, this signals yield curve flattening…

In Europe, regional stock markets are mixed ad regional Gov’t 10y advance with dollar selling around cash open.

In China, much of the same lower dated yields advance with regional stock markets.

In Japan, lower dated yield advances as longer dated yields is suppressed with USD/JPY.

2s10s curve downside projection .447-S3

More flattening seen in shorter dated yields verse longer dated yields.

Wilshire & Retailers Sales

Wilshire US Mid-Caps & M2 Money Supply

Russell 3000 & Personal Saving