MACRO MORNING NOTE October 11, 2017

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

S&P Futures are slightly lower with a mixed outlook for global stocks heading into the US cash session. The outlier in Asia is Japan’s Nikkei225 hitting its highest level since 1996 with the understand the BOJ owns a high percentage of ETFs in the region. Another outlier is in Europe with the IBEX35 gapping up +153bps after Spain asks Catalonia: did you declare independence or not? The reflation trade in the United States is faltering with the dollar in the low 93 handle and the UST10Y continues to fade from highs saw last week. In commodities, WTI probes on a v-shape recovery now in the 51 handle. Precious metals including gold and silver have received support this week.  In currencies, the dollar remains weak and that could be related to Trump’s tax plan faltering.

Starting in Asia, where we don’t expect abnormal volatility until after China’s communist meeting later this month. The broad index of Asia shares tagged a decade high on Wednesday following mixed Wall Street of a failed new all time high, but the status quo rejoiced when Catalonia was stopped short of declaring independence.  The MSCI ex-Japan index touched it’s highest levels since 2007 as major regions tagged record highs. Japan’s Nikkei225 tagged two decade highs despite Kobe steel tumbling -20% on fraud. Choppy session in China overnight with the Shanghai Composite +20bps and Hang Seng -40bps after a liquidity effort by the PBOC along with a profit tax cut announcement.

Over in Europe, Spain’s IBEX35 jumped +150bps following Catalonia’s government to backdown from an immediate independence. The EUR/USD drifted upwards into the 1.18 handle with the dollar probing the low 93 level. Noticeable weakness  in the CAC40, DAX, and UK100 as any overnight rally has fizzled. Regional yields are somewhat higher this morning with the DE10Y .0462.  Brent Oil fades from 3am highs now probes the high 56 handle. The pound has been under pressure in the past month, as Brexit negotiations remain stuck.

In the US, President Trump’s fiscal plans remain a low probability for passage in 2017 due to the feud with Tennessee Senator Bob Corker, who has raised questions about tax-code overhaul harm. The reflation trade stalls this morning with the dollar printing 93.18 and the UST10Y 2.354. WTI stalls out at the European start, but maintains the 51 handle. S&P futures are lower -17bps due to selling from European equities in the 7:45am hour. Overnight, US flew B1 bombers over the Korean Peninsula then North Korean answered back by saying it could be ready to launch multiple skud missiles. Overnight, Trump ordered his Generals to the war room as a preventive attack on North Korea is feared. Are we living in 1937?

US Event Calendar

  • 10am: JOLTS Job Openings, est. 6,135, prior 6,170
  • 2pm: FOMC Meeting Minutes
  • 2:40pm: Fed’s Williams Gives Community Leaders Speech

In commodities, WTI has lost the 51 handle heading into the 8am hour. Gold and silver bid after four weeks of declines. Industrial metal’s stall continues to print in the 6-7th week. OPEC out with headlines this morning expecting oil to remain 50-55 next year, but remained sour that higher prices will restart US shale.

In the US, WTI fades rapidly in the late 7am hour with reflation trade stall. S&P futures decline -17bps.
At the same time, Europe equities start to sell across the board with a run into bonds.. EUR/USD probes higher. Brent Oil fades from highs.
In China, regional equities, CNY/USD, and Gov’t yields advance in October ahead of Communist Meeting.
Chart of the day, USD/JPY verse S&P500
Visualizing the recent reflation trade push
S&P500 Renko riding upper rails of entire cycle
Major Commodity Index in Sym triangle