MACRO MORNING NOTE October 04, 2017

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

Global stock markets are mixed this morning following the Federal Reserve shortlist of potential candidates, PMI day in the United States, European Stress, and Yellen remarks at 3:15pm. High timeframes indicate Asia is producing overall stress in markets, but as of this morning new stress forms in Europe following the Catalonian vote.  The reflation trade in the United States is fading with the dollar in the lower 93-handle and the UST10Y printing at 2.311.

Per BBG, “Advisors to President Donald Trump have given him a final list of candidates to take over as Federal Reserve chair when Janet Yellen’s term ends early next year. Former Fed Governor Kevin Warsh – who has drawn fire from both the left and right – is among the leading candidates. Jeffrey Gundlach, the head of DoubleLine Capital, said that Federal Reserve Bank of Minneapolis President Neel Kashkari will get the job, which would no doubt catch markets off guard”.

Taking a look at the reflation trade this morning. The Dollar and UST yields are rolling over with a postive divergence in S&P futures. It appears the reflation trade is following oil lower, which has been ratcheted down over the past few sessions.

Event Calendar: PMI day in the United States

  • 8:15am: ADP Employment Change, est. 135,000, prior 237,000
  • 9:45am: Markit US Services PMI, est. 55.1, prior 55.1
  • 9:45am: Markit US Composite PMI, prior 54.6
  • 10am: ISM Non-Manf. Composite, est. 55.5, prior 55.3
  • 3:15pm: Yellen Gives Welcoming Remarks at Community Banking Event

This is what’s caught our eye over the last 24 hours.

Starting in Europe, where tensions between Madrid and Catalonia spark Eurozone risk off despite global stock markets tagging new highs. At any time, Catalonian officials could declare independence from Spain. The IBEX35 slips -225bps and is now in correction territory from May 08 high -10%. The selling how now vibrated into FTSE Milano Italia Borsa Index -135bps along with a decline in European banks. The rotation in Europe is mainly a sell equity move and flood into bonds with long EUR/USD.

Over to Asia, stock markets traded mixed on Wednesday, even after US equities closed higher.  The Nikkei225 closed flat at 20,626.66 with the a declining USD/JPY following regional bond yields lower. Elsewhere, Hong Kong’s Hang Seng index was up +66bps along with Shanghai Composite +28bps. In our opinion, the ‘put’ by the PBOC is to last throughout the Communist meeting in China this month. Singapore’s Straits Times index fell -37bps, while India’s Nifty 50 was up +58bps. What has caught our eye this morning is Australia’s ASX200 -87bps and Singapore’s Straight Times index -67bps. Markets in China and South Korea remain closed this week for public holiday.

On high timeframes, Asian stress has been developing for multiple months. Now it appears European stress will start to develop amid a political crisis in Spain.

US Industry rotation over the past 5 trading sessions

US Sector rotations over the past 5 trading sessions

Global ETF rotations over the past 11 trading sessions

Continued rotation out of consumer staples, real estate, and utilities..

Weakest link in Asia is Australia and Singapore

Weakest link in Europe is IBEX35 and FTSE Italia

The recent reflation attempt in the US is stalling

Reflation trade in the US is stalling chasing oil lower

In Europe, regional stock markets and yields are dropping with a stronger EUR/USD

In Japan, the USD/JPY is chasing regional gov’t yields lower with Nikkei225 stalling

GSCI precious metals, industrial metals, and energy weekly index have stalled

WTI monthly/weekly +25% advancement from June has now stalled likely to compress in value area of 42-50 until the next major move

US Dollar monthly/weekly countertrend in attempt but latest push is fading. Line in the sand is 92.87 200sma (weekly).

UST10Y monthly/weekly countertrend in attempt but latest push is fading. Line in the sand is 2.309 (monthly).