New #Quad2 Cycle Highs

“Giles de Hertesbergh, who became Master of the Mint in 1316, was convicted of shortchanging the currency.”
- William Silber

And you thought today’s US Treasury Secretary calling for a weaker US Dollar, accelerating inflation, and rising interest rates was a “plus”, eh? Oh, you mean Yellen didn’t say it quite like that? lol

Back in 1791, Alexander Hamilton borrowed from British history when he implemented “hard asset” content into American currency.

“He prepared  a report on the Establishment of a Mint that recommended defining the US Dollar in terms of Gold and Silver, like the legal bimetallic standard prevailing in England.” -The Story of Silver, pg 11

Back to the Global Macro Grind…

Welcome to the summer of 2021’s first Macro Monday @Hedgeye! I hope you had an awesome #Quad2 weekend and are ready to get after it this morning.

Being long of inflation since June of 2020 hasn’t been “transitory” – it’s been TRENDING.

As is customary at the measuring and mapping macro mint, let’s start with the Global Currency market:

1. US Dollar Index was +0.1% last week but remains Bearish on both @Hedgeye TRADE and TREND durations
2. EUR/USD corrected -0.2% last week but remains Bullish on both @Hedgeye TRADE and TREND durations
3. Canadian Dollar was -0.1% vs. USD last week but is +4.8% in the last 3 months and Bullish TRADE & TREND
4. GBP/USD corrected -0.2% last week but is +1.9%  in the last 3 months and remains Bullish TRADE & TREND
5. Brazilian Real was +3.5% vs. USD last week to +12.3% in the last 3 months (not a typo)
6. South African Rand was +2.5% vs. USD last week to +13.9% in the last 3 months (not a typo)

For those of you who are new to measuring the interconnectedness of it all, the recent moves in the Real and Rand are massive FX market moves.

I suggest you pay attention to the Global Macro numbers more than some US centric “mid cycle” narrative. On that score, the Global Commodities market wasn’t doing anything “mid” last week. It was ripping to new Cycle Highs:

1. CRB Commodities Index inflated another +2.2% last week to +10.2% in the last 3 months and new Cycle Highs
2. Oil (WTI) inflated another +5.0% last week to +11.4% in the last 3 months and new Cycle Highs
3. Corn inflated another +4.0% last week to +30.7% in the last 3 months  
4. Soybeans inflated another +4.6% last week to +16.7% in the last 3 months
5. Sugar inflated another +2.0% last week to +12.8% in the last 3 months

In addition to what’s still EARLY CYCLE (i.e. the LABOR market), this particular #Quad2 economy has plenty of INVENTORY shortages… because… wait on it… INVENTORY is coming off the LOWS of The Cycle too.

That’s been all good. We’ll stay long of #Quad2 in both Commodity and Global Equity terms, until The Singularity of my Signaling #Process tells me to do otherwise.

Two of the 4 Horseman (US Equity Sector Styles to be long of in #Quad2) led SPY back towards an ALL-TIME high last week:

1. Energy Stocks (XLE) inflated another +6.8% on the week and remain Bullish TRADE and TREND 
2. Financials (XLF) ramped another +1.3% on the week to new Cycle Highs as well

European Equity market cycles are neither early nor “mid” – they have been #Quad2 as well:

1. EuroStoxx600 was up another +0.8% last week to +9.9% in the last 3 months and new Cycle Highs
2. Germany’s DAX was up another +1.1% last week to +11.6% in the last 3 months and new Cycle Highs

Then, on the Emerging Markets front, there were some big #Quad2 Inflation Accelerating moves as well last week:

1. Brazil’s stock market was up another +3.6% last week to +15.5% in the last 3 months
2. Russia’s stock market was up another +2.7% last week to +13.2% in the last 3 months

Now, if you don’t do Global Macro, you may have missed all of these cross asset class returns associated with Global #Quad2 (ex-China which was down -0.3% last week and remains in #Quad3)…

And anchored on what US Equity only PMs might be moaning about with something like the NASDAQ “only” up +8.6% in the last 3 months… or what the US market’s “multiple” is…

But anchoring on “valuation” and a US centric view isn’t what we modern macro people with a Full Investing Cycle process do. We do what we do. And staying long of #Quad2 into new Cycle Highs has been the right thing to do.

Immediate-term @Hedgeye Risk Range with TREND signal in brackets:

UST 10yr Yield 1.55-1.68% (bullish)
SPX 4169-4246 (bullish)
RUT 2197-2354 (bullish)
NASDAQ 13,470-13,899 (bullish)
Energy (XLE) 53.27-56.70 (bullish)
Financials (XLF) 37.29-38.91 (bullish)
Shanghai Comp 3 (neutral)
DAX 15,372-15,729 (bullish)
VIX 15.04-19.88 (bearish)
USD 89.43-90.44 (bearish)
EUR/USD 1.211-1.226 (bullish)
GBP/USD 1.408-1.423 (bullish)
CAD/USD 0.82-0.84 (bullish)
Oil (WTI) 65.64-70.11 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer