MACRO MORNING NOTE November 27, 2017

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

Global stock markets are mixed this morning with Asia leading the charge lower. Europe is slightly positive this morning on mid-session deal making boosting financials. S&P futures are flat with the fear of a flattening yield curve coupled with a lower dollar probing into the midpoint of the 92-handle. WTI fades ahead OPEC’s meeting in Vienna on Thursday. NatGas futures erupt overnight +3.11%, perhaps with the understanding colder weather is projected for the second half of December. Copper tumbles -1.21% to 3.131 failing to break above the high timeframe resistance of 3.19. For the most part, Asia’s weakness is in China and Korea inducing uncertainty to start the trading week..

Starting in Asia, where the Chinese stock rout continues as China’s top bond fund managers says rout may worsen. Per BBG,

It’s been the worst month for China’s local corporate notes in two years. And it might just be the start, as the nation’s top bond fund manager says yield premiums could rise further in 2018. President Xi Jinping is stepping up efforts to trim the world’s largest corporate debt burden, after emerging even more powerful from the Communist Party’s twice-a-decade congress in October. Financial institutions are hoarding cash amid expectations the government will announce more measures to curb leverage, and that is pushing up borrowing costs in the money market.

“There is a high probability that credit spreads will widen next year given that there hasn’t been any improvement in the tight liquidity,” said Zhang Qinghua, general manager of fixed-income fund investment at E Fund Management Co. As we’ve mentioned before, volatility was to enter post October’s China Communist meeting.

As a whole, Asia stock indexes closed down on Monday with negative development in China’s bond market. South Korea’s KOSPI slid on weakness in tech names.

Starting in Japan, the Nikkei225 gave up gains in the early session and closed -.24% at 22,495 sustaining two decade highs. Tech stocks were mixed with one clear winner of Nintendo closing up +2.38% on optimism from the U.S. corporate holiday called ‘Black Friday’. In Korea, the KOSPI declined -1.44% to 2,507 with tech stocks dragging the overall index. Over in Australia, the ASX200 was flat at 5,988 with weaker overnight commodities such as copper and WTI. Ending in China, where bond yield rise is in focus sending stocks lower. The Shanghai Composite closed lower -.92% at 3,222 and the HKG33 closed lower -.58%.


The dollar was steady against a basket of major currencies. The dollar index stood at 92.786 at 2:56 p.m. HK/SIN, near its lowest in around eight weeks. The greenback lost steam after initially firming against the yen, with the U.S. currency slipping to 111.44 after rising as high as 111.68 during the session. “We remain cautious of expectations for a flatter U.S. bond yield curve driving the dollar index lower,” said Philip Wee, FX strategist at DBS Group Research, in a morning note. Yields on short-term U.S. Treasurys have risen ahead of an expected Federal Reserve interest rate hike in December, while yields on the 10-year Treasury have been flat “on the Fed’s discomfort” with low U.S. inflation, Wee added.

Over to Europe, where stock markets were a tad more optimistic on the backs of financials amid a fresh new round of dealmaking.  At 7:11am est., the DAX -.20%, IBEX +.30%, and the UK100 -.14% (UPDATED indexes started selling 7:15). Immediately after writing the morning note, Europe turned negative. A similar beat to Asia, as tech stocks led losses in Europe early Monday morning. The EUR/USD has been climbing to two-month highs against the dollar on Monday following “business confidence index and an agreement by Germany’s Social Democrats to hold talks with Chancellor Angela Merkel in a bid to form a new coalition government”.

Starting in the US, SPX500 has been propped on the WTI ramp since about the 20th as the reflation trade negatively diverges. SPX500 ignores declining dollar and UST10y, nevertheless a yield curve flattening.

Any optimism in Europe is now rolling over with sells in equities and declining bond yields indicating safe haven flows into bonds.

Overnight action indicates unwinds in USD/JPY (LONG YEN) and Nikkei225.

Over in China, bond yield surge is leading to selling in Shanghai Composite and other regional equity indexes.

Europe’s ramp of SPX500, reflation trade, and oil has been thwarted into the 7am hour. Pump and dump

Weekly timeframe of GSCI: precious metals, industrial metals, and energy.

SPX EPS estimate for Q4 has declined by 1.7% over past 12 months, 0.8% since September 30 h/t factset

Th trailing 12-month P/E ratio for $SPX is 22.1, above the 10-year average of 16.9 h/t factset

In recent times, SPX500 propped on CRB Index, meanwhile reflation trade plus yield curves decline.

Longer perspective– the reflation trade has been broke all year

Sweden Housing Market verse US Stock Market

Sweden Housing Market v. China Housing Market

UST10Y monthly/weekly compressing on 50sma weekly 2.326– that is the line in the sand for the next directional imbalance.

DXY monthly/weekly S2 92.01 projection

WTI monthly/weekly R1 55 break could be the blowoff top spectacular, if further upside did occur would be 62 R2.. Hope and hype and lots of comments has produced the melt up starting in mid-summer.

SPX500 monthly/weekly R3 2578 overextended. Trump’s political tool will need to find a new advertisement to attract buyers over R3. Waiting for an unfair high then reversion back to pivot will need a disappointment phase for that.