“I realized something: he doesn’t know numbers.”
- Richard Feynman
In a fun chapter he called “Lucky Numbers”, that’s what Feynman had to say about a Japanese man who was trying to sell him an Abacus in Brazil. “With the abacus you don’t have to memorize a lot of arithmetic combinations…
“All you have to do is learn how to push the little beads… so we’re slower at basic arithmetic, but we know numbers… the whole idea of an approximate method was beyond him…” -Surely, You’re Joking, Mr. Feynman, pg 197
Approximating the slope, or rate of change, of things is what we do here at Hedgeye. No, that doesn’t mean we’re going to nail every market move (I personally got nailed last week!). It means we know the numbers better than Tourists do.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! For those of you who are new to our measuring and mapping #process, it’s deliberate, disciplined, and specifically defined across durations.
The most important thing about this week’s update: defining immediate-term TRADEs vs. intermediate-term TRENDs.
Let’s start with the big Counter @Hedgeye TREND move we just saw in the Global Currency market:
- USD Dollar Index ramped +1.8% on the week and right through TRADE resistance, but remains Bearish TREND
- EUR/USD corrected a big -2.0% on the week, breaking @Hedgeye TRADE support, but holding Bullish TREND
- Canadian Dollar corrected a big -2.5% on the week vs. USD = Bearish TRADE, Bullish TREND
- GBP/USD corrected a big -2.1% on the week = Bearish TRADE, Bullish @Hedgeye TREND as well
- Brazilian Real was +0.6% on the week vs. USD to +9.3% in the last 3 months = Bullish TRADE and TREND
Since TRENDs are defined as having a duration of “3 months or more”, they’re good at contextualizing The Cycle. With immediate-term TRADEs which are “3 weeks or less”, especially into options expiration, anything can happen.
Commodities are a good example of inversely correlated TRADEs (vs. USD) but Cyclical @Hedgeye TRENDs that we have been riding since June of 2020:
- CRB Commodities Index corrected -3.0% last week to +10.0% in the last 3 months and remains Bullish TREND
- Oil (WTI) inflated another +1.0% last week to +20.1% in the last 3 months and remains Bullish TRADE and TREND
- Copper corrected a big -8.4% last week to +1.4% in the last 3 months = Bearish TRADE, Bullish TREND
- Corn corrected a big -7.1% last week to +21.0% in the last 3 months = Bearish TRADE, Bullish TREND
- Lumber corrected a big -15.2% last week to +15.5% in the last 3 months = Bearish TRADE, Bullish TREND
- Live Cattle inflated +1.3% last week to +2.1% in the last 3 month and remains Bullish TRADE and TREND
“So”… the people who completely missed being long of A) #InflationAccelerating for the last 12 months and/or B) Commodities as an Asset Class will be the 1st to call out “Lumber and Corn” (and the last to mention Oil or Cattle).
I can empathize with those economists and strategists, because that’s what they do. They seek numbers on the abacus that support their “deflation” narrative – they don’t know the numbers that drive the @Hedgeye Inflation Nowcasts.
A narrative that some people had was that Gold would work this year (it is down -7% YTD) and that it would really work if the stock market stopped going up (it didn’t). Gold was down -5.9% last week vs. NASDAQ down a whopping -0.3%.
That said, I covered my entire Gold short on Thursday and Friday. I am naked long physical Gold, for now.
We’re still long European Equities and will reiterate that on tomorrow’s Q3 Macro Themes show @HedgeyeTV:
A) Swiss Stocks were actually up another +0.8% last week to +8.8% in the last 3 months
B) German Stocks corrected -1.6% last week (most of that coming on Friday) to +4.6% in the last 3 months
Unlike US Financials (XLF corrected -6.2% last week) which broke immediate-term TRADE support last week (and remain Bullish TREND), German and Swiss stocks remain Bullish on both TRADE and TREND durations.
Moreover, unlike US ones, European Bond Yields did more of what The Cycle is doing last week:
A) Germany’s 10yr Bund Yield was +7bps on the week and remains Bullish TREND in #Quad2
B) Italy’s 10yr Yield ramped +13bps (basis points) on the week and remains Bullish TREND too
The real big rates move last week was one that was unique to the front-end of the US Yield Curve. With the UST 2yr Yield being shocked to the upside with a +11 basis point week-over-week move to 0.26%, it left its Fed Shock mark!
Is that going to happen weekly? No. That’s why I see last week’s uniquely American Equity Volatility move (VIX +32% in a week!) for what it was – a TRADE, not a TREND. In the last 3 months the VIX is down -4%.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.41-1.62% (bullish)
UST 2yr Yield 0.16-0.27% (bullish)
SPX 4149-4258 (bullish)
RUT 2 (bullish)
NASDAQ 13,865-14,224 (bullish)
Tech (XLK) 139.28-144.90 (bullish)
Energy (XLE) 52.04-57.22 (bullish)
Financials (XLF) 34.66-38.71 (bullish)
DAX 15,405-15,827 (bullish)
VIX 14.50-21.48 (bearish)
USD 89.31-92.34 (bearish)
EUR/USD 1.184-1.228 (bullish)
USD/YEN 109.16-110.84 (bullish)
GBP/USD 1.379-1.424 (bullish)
CAD/USD 0.80-0.83 (bullish)
Oil (WTI) 69.05-72.78 (bullish)
Nat Gas 3.05-3.38 (bullish)
Gold 1 (bearish)
Copper 4.10-4.72 (bullish)
Silver 25.58-28.97 (bullish)
Bitcoin 32,104-40,995 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
