MACRO MORNING NOTE October 09, 2017

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

S&P futures are higher on a closed U.S. session following postive sentiment from global stock markets. Tensions between the US and Turkey increased overnight when both countries suspended visa programs for citizens. The harsh crack down was after a US consulate employee was arrested for espionage. The Turkish Lira is lower -242bps on the political turmoil. Spain’s IBEX +66bps almost v-shape recovery all of October’s losses  following large pro Spain demonstrations over the weekend. There is speculation Catalonia could backdown, but in the near term Catalonia is expected to declare independence.

Not much movement in the commodity space with WTI flat in the low 49 handle. Precious metals bid with gold and silver up 50-70bps on geopolitical turmoil on the Korean Peninsula. Over the weekend, war of words continued with the United States and North  Korea with no missile launch. The dollar is lower this morning probing the midpoint of the 93 handle with a EUR/USD at the 1.17448 mark. The Sterling gains in the overnight as Prime Minster Theresa May looked to reassert her leadership. On a large timeframe, stress in Asia and Europe is still evident in equity markets.

Starting in Europe, where stock markets are slightly higher to mix, led by equities in Spain after a weekend of mass demonstration in Catalonia in favor of unity. The IBEX 35 +66bps as investors closely watch the developments in Catalonia, along with US earnings season kick off. The DAX is flat with UK100 -25bps following german industrial output rebounded from a summer rut. Senior members of Catalonia  called for dialogue with Spain, warning that if a resolution is not found serious economic damage will occur in the Eurozone. The EURO is slightly higher 1.174575 +09bps as the dollar is met with sellers continuing from Friday. Precious metals gain 50-75bps with crude flat in the low 49 handle.

“As regards Catalonia, it is difficult to have much conviction with respect to the eventual outcome,” JPMorgan Chase & Co strategist Mislav Matejka said in a note. “However, we believe that this will be seen as a localized issue, where the dips should be bought.”

Looking at the week ahead: 

  • Minutes from the most recent Federal Reserve meeting are due Wednesday.
  • The International Monetary Fund and World Bank hold their annual fall meetings this week.
  • Earnings season begins for major U.S. banks, led by JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. Also reporting will be BlackRock Inc., Domino’s Pizza Inc., Samsung Electronics Co., German container company Gerresheimer AG, U.K. grocery wholesaler Booker Group Plc, and Sky Plc.
  • The active Atlantic hurricane season will probably figure prominently in U.S. data on retail sales and consumer prices.
  • Michel Barnier, the European Union’s chief Brexit negotiator, and his U.K. counterpart David Davis begin the fifth round of talks on the U.K.’s departure from the EU.

Elsewhere, MSCI in Asia Pacific index added a slight gain +10bps to 163.41. Traders in mainland China returned from holidays sending the Shanghai +180bps, but faded the close to +76bps. The U.S. bond market will be closed for US holiday on Monday.Markets in Japan, Korea and Taiwan are also closed. Business activity in China’s services sector grew at its slowest pace in 21 months in September signaling new business is lagging into the 2H. The Chinese Caixin Services PMI printed at 50.6 in September vs. Exp. 53.1 (Prev. 52.7); a 21-month low.

In commodities, precious metals are the biggest movers with Gold +52bps and Silver +74bps. Cooper +18bps and maintains the 3 handle after last week’s push higher. The GSCI S&P Agriculture index continues to bracket in the 2017 timeframe now printing on the lower extreme.

Last week, NFP data prints -33k tagging 7 year lows

SPY/VIX Ratio (monthly) ridding upper rail of supply line notorious for stock market tops

Compression UST10Y (monthly) indicating a major move nears

Two important commodity charts indicating compression, then a major move in 2018

US/Foreign Real Estate Ratio

S&P500 Renko (daily) riding upper rail of decade channel

Stress originating in Asia and Europe

SPX monthly/weekly nearing R3 2578.4

WTI monthly/weekly lower high and lower low from 2014 forming a bottom bump and run pattern. Current move is lead-in, but failed to break diagonal declining supply line (red). This could indicate a reversion back to the pivot 44.81.

UST10Y monthly/weekly (closed) if 2.31 maintains then projection 2.641. If <2.31, a reversion back to pivot 2.136..

US Dollar monthly/weekly for guidance watch 92.94  200sma (weekly)