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MACRO MORNING NOTE|Post-Cohn Era, Futures Tank, World Stocks Sink 

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

  • U.S. stock futures are sharply lower
  • UST10Y 2.861
  • The Canadian dollar, Mexican peso are under pressure; and
  • Cryptos lower 

Gary Cohn’s resignation from the White House sent world stock markets and the major currencies of U.S. trade partners spiraling lower Wednesday, as traders now believe the news of Cohn’s exit paves the way for President Donald Trump to move forward with his steel and aluminum tariffs. S&P futures fell more than -1% overnight and -1.3% drop for Dow Jones Industrial Average. The dollar declined and stabilized around 89.42 level, rejecting the critical 90 handle after the news. There is a slight push into bonds this morning with the UST10Y printing 2.860 but still maintains near four-year highs. WTI is lower in the low 62-handle following a bearish API report with traders anxiously waiting the 10:30 am est. EIA figures. In recent sessions, US stock markets have correlated positively to oil — with the correlation fading, this could mean upside is limited in US stocks.

Over in Europe, the DAX is lower -.62% at 12,083, the CAC40 is lower -.43% at 5,147, and the UK100 is mixed -.28% at 7,139. The EUR/USD strengthen to 1.24344 level, as the dollar falters under Cohn’s exit. Stronger EUR/USD should weigh on exporters in the region.

Cohn made it almost 14-months as Trump’s top economic advisor. It seems like Cohn and Trump had major disagreeances when it comes to trade, as he submitted his resignation Tuesday.

“There is an assumption there has been a disagreement somewhere and the hottest issue is tariffs,” said Russ Mould, investment director at AJ Bell. Mr. Cohn’s departure “suggests to me the president is determined to get his way on steel and aluminum duties,” although there is a sense that many other senior Republicans are also opposed to the measures, he added.

“I don’t think this thing with steel is ultimately going to result in a trade war,” said Said Haidar, chief executive at hedge fund investment firm Haidar Capital Management. “The real question is, is there a read on from this to Nafta, does [Mr. Trump] go after Chinese intellectual property…does he go down this road further and further and do you start getting retaliatory effects?” he said.

” As we have warned before that one of the key risks to the global syn growth narrative, in our view, is protectionism. Tariffs rarely occur in a vacuum and the risk of trade war is higher than ever. These things can multiply, similar to the 1930s, perhaps, we’re repeating the mid/late 1930s — headed to a 1937/’38 recession down the road. Nevertheless, we believe protectionism is a serious threat to economic growth, but hey, many Americans didn’t realize that making America great again was going to happen in a pain-free environment. There are no painless solutions here. The tariff seems to be a bargaining chip in North American Free Trade Agreement negotiations,” said Alastair Williamson.

Asia snapshot post-Cohn’s exit:

US Economic Calendar:

SPX500 channel of death

Precious metals compress, Industrial metals stall, and CRB continues to print at the neckline of failed breakup

SPX500, Dollar, Oil, UST yields all trending lower

UST yields fade from yesterday’s high. UST10Y prints 2.849

Cryptos across the board are battered

SPX500 reversion to pivot 2,536

“There are going to be a lot of unhappy snow lowers in PA and NY. Razor sharp gradient,” said Ed Vallee | Vallee Wx Consulting .

The dollar is still not rebalanced and risks further downside. Twin deficits and out of control debt issuance in the US is leading to a weaker dollar.

WTI if R1 61.25 is violated then a downside imbalance to 54.22 is possible

UST10Y resistance 2.71

The trailing 12-month P/E ratio for $SPX is 21.8, above the 10-year average of 17.1 h/t Factset