MACRO MORNING NOTE NOVEMBER 30, 2017
SBA’s Alastair Williamson concludes the Macro Morning Note from Baltimore, Maryland
Wall Street produced a liquidity gap event in the Nasdaq and in technology prior session that has many investors questioning liquidity. Similar to June’s liquidation, there was no market generated information and shows how a high timeframe selling can force a fragile inside market to break. Nevertheless, we now see the dangers when central bank OMO pushes tech higher and higher— what happens next is liquidity break. Financials have helped European stocks recover, but there is still unease in the tech industry. In Asia, markets closed lower mirroring Wall Streets tech liquidation. As we’ve stressed before market panics will not be due to an external event such as geopolitics, but rather a break in the inside market due to poor liquidity conditions. This is why President Trump has to constantly advertise markets, because the participation rate is lackluster. Reflation trade is mixed this morning with the dollar at the midpoint of the 93-handle and UST10Y fading from 2.386. Yield curves in the United States continue to flatten and will most likely continue the trajectory throughout 2017 signaling economic uncertainty.
Starting in Asia, where markets overall closed lower thanks to Wall Streets decline in tech. In Japan, the Nikkei225 advanced +.57% to 22,724 with losses in tech, but offset by financials. In South Korea, the KOSPI tumbled -1.45% to 2,576 as tech stocks were clubbed. The central bank in the region raised rates to 1.5 percent from 1.25 percent that has been widely expected and serves as a warning— tightening is occurring to get rates high enough– so in the next recession there will be ammo. Turmoil was unleashed in Australia overnight with ASX200 -.69% to 5,969 with losses in materials, technology, and banking. The financial sector was called by government for questions. Here is what CNBC had to say,
Top executives from the country’s so-called “Big Four” had earlier sent a joint letter to Treasurer Scott Morrison calling for “a properly constituted inquiry” into sector in a bid to “restore trust.” Commonwealth Bank closed down 1.91 percent and ANZ fell 1.08 percent.
Over to China, where mainland stocks came under pressure with Shanghai Composite closing down -.61% to 3,317 and the Shenzen Composite ending lower -.90% to 1,901. Main economic news in the area was China’s official mfg Purchasing Mangers’ Index came in at 51.8 for November, slightly above forecast of 51.4. The service PMI came in at 54.8, compared to m/m 54.3.
— YUAN TALKS (@YuanTalks) November 30, 2017
KWOK:CHINA CREDIT GROWTH TO SLOW FROM 16%TO 13% IN 2018.. you've been warned
— StockBoardAsset (@StockBoardAsset) November 30, 2017
As what we’ve warned before, the global synchronized growth narrative inception came from the commodity boom in 1Q16 in China after the government targeted commodities with trillions in public financing. Couple that with the BOJ diving into NIRP, ECB buying bonds, SNB buying $88 billion worth of US stock and that is the makings of a narrative that really seems to be faltering.
In recent weeks GSCI industrial metals have stalled along with copper. There could be a sizable correction in /HG if 3.19 fails to break. Measurement of correction -11 to -14%.
Revisiting tech this morning here is a snippet from Zerohedge,
CNBC busily defending the utter bloodbath in semi stocks as nothing to worry about… but this is the biggest plunge for these market darlings since Brexit (June 2016)…
…and just happens to have occurred as the index finally cleared the 2000 dotcom peak…
FANG Stocks are getting smashed – the biggest drop since Feb 2016…
Quite a rotation on the week…
Glancing at Europe much of the same where tech is leading the charge down, but more stability in overall indexes following financials surge. The DAX +.85% to 13,172, IBEX35 +.39% to 10,308, and the UK100 +.34% to 7,411. European stocks are on track for their worse monthly fall since June, down 1.7 percent on the month as investors take profits.
Chipmakers globally have wobbled this week after a Morgan Stanley note said the super-cycle for memory chips could be nearing a peak, and as the leaders of a dizzying tech rally some say is reaching bubble territory. “I‘m not sure one would say it’s a bubble. By and large the companies are generating either good profits or the potential for good profit growth,” said Andrew Milligan, head of investment strategy at Standard Life.
In Vienna, OPEC is meeting this morning and it looks like allies are set to agree on oil cut extensions to end of 2018. We’ve seen this story before rebalancing is kicked down the road over and over again. In recent sessions, WTI has declined -4% from the 59-handle leading into the meeting. Early this morning a +.95% ramp was seen into the high 57-handle as the meeting was kicked off. If the 58-59 area remains as resistance, there is a strong likelihood that a much larger fade could occur. In recent months, OPEC has thrown the kitchen sink at oil with the destabilizing of Saudi Arabia and the threat of war with Saudi-Israel verse Lebanon/Iran.
Yesterday’s pain per sectors/indexes in US
Most active futures on CME this morning (Natgas and Japanese Yen feeling the pain)
SPX500 monthly/weekly >R32578 mania stage in uncharted territory fueled by fiscal stimulus proposals. Debt ceiling coming up. Let’s hope fiscal stimulus passes or disappointment phase will be ushered in rather quick.
WTI monthly/weekly 58-59 resistance on weekly view
DXY monthly/weekly boxed S1-S2 compressing then major move.
UST10Y monthly/weekly line in the sand weekly 50sma 2.327 use as directional imbalance hint
SPX500 fueled through CRB as reflation trade crumbles.
Investors think it’s cool to buy high premium U.S. stocks….