“Arguments are extremely vulgar, for everybody in good society holds exactly the same opinion.”
- Oscar Wilde
That’s another good quote about the politically “correct” establishment. The best part about both the Old Wall and its consensus media is that they rarely have it correct at big pivot points in The Cycle.
What’s consensus positioning right now in the USA? A: Long US Dollars and still wrong on TRENDING Commodity Inflation (the establishment calls that “transitory”).
With both Goldman and Morgan Stanley still “taking down their numbers” AFTER GDP #slowed in Q3, the UST 10yr Yield is still steepening the curve and taking up the probability of a #Quad2 consumption acceleration in Q4.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! For those of you who are new to our proprietary #process, on Mondays we measure and map the week-over-week moves in macro and contextualize them within The Cycle.
Let’s start with last week’s Global Currency market moves:
- USD Index was flat last week and remains Neutral @Hedgeye TREND for the 2nd week in a row
- EUR/USD was -0.2% last week and also remains Neutral @Hedgeye TREND
- Yen was down another -1.0% vs. USD last week in a big bearish @Hedgeye TREND breakdown
- GBP/USD was +0.5% last week and remains Neutral @Hedgeye TREND
- Canadian Dollar was +1.4% vs. USD last week, moving back to Bullish @Hedgeye TREND
- Norwegian Krone was +1.0% vs. USD last week and remains Bullish TRADE and TREND
There’s a growing Global Macro #divergence between Commodity Country Currencies like Canada, Norway, and Russia and Carry Trade Currencies like the Japanese Yen and Swiss Franc as Global Rates breakout to the upside.
Trending INFLATION? A: Yep. We’re still seeing non-mid-cycle inflation in the Commodities to new Cycle Peaks:
- CRB Commodities Index inflated another +2.2% last week to +7.4% in the last month alone
- Oil (WTI) inflated another +4.6% last week to +14.9% in the last month alone
- Copper reflated +2.1% last week taking its 1-month price momentum back into the black
- Cotton inflated another +5.8% last week taking its 1-month price momentum to +17.6%
- Oats inflated another +10.6% last week to +31.1% in the last month alone
- Lumber inflated another +15.3% last week to +22.9% in the last month alone
Remember the times in August where most people with the “transitory” narrative were cherry picking the “break-down” (of their Moving Monkey) in the Lumber chart? #crickets…
When the UST 10yr Yield was actually breaking down on my Risk Range™ Signal (i.e. below 1.31% @Hedgeye TREND support) was:
A) During #Quad3 Real Growth #slowing in Q3… then
B) The 10yr made a series of higher-lows during AUG and broke out to Bullish @Hedgeye TREND in SEP
That’s why the title of this note is 10yr = #Quad2. It’s the only Quad Shift where rates breakout to the upside:
A) UST 2yr Yield was +5 basis points last week to +10 basis points in the last month
B) UST 10yr Yield was +15 basis points last week to +27 basis points in the last month
Commensurately, the Yield Curve (which is a great leading indicator of economic Quad Shifts too) steepened a full +10 basis points last week to +17 basis points wide on 10s/2s in the last month.
While Tourists who are still staring at the Dow, in points, may have missed the Bond & Commodity market signals last week, US Equity Sector Style performance did not:
A) Financials (XLF) pivot back to long in #Quad2 (vs. short in #Quad3) paid off with a +2.3% weekly return
B) Energy Stocks (XLE) led TRENDING #Inflation with a +5.1% weekly ramp to +18.6% in the last month alone
The other side of that #Quad2 Cyclical Long trade was “defensive” Healthcare (XLV) which crushed it during #Quad3 in Q3 but was down -0.3% last week to -6.7% in the last month discounting a #Quad2 re-opening.
On the Emerging Markets Equity front, 2 of the Top 4 Risk Range™ Signals, Russia (RSX) and India (INDA) were up another +5.1% and +2.3% on the week, respectively.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.44-1.63% (bullish)
UST 2yr Yield 0.25-0.34% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 14,265-14,809 (bullish)
Energy (XLE) 51.66-57.15 (bullish)
Financials (XLF) 37.29-40.22 (bullish)
VIX 16.48-24.58 (bearish)
USD 92.74-94.49 (neutral)
EUR/USD 1.152-1.173 (neutral)
USD/YEN 110.75-113.27 (bullish)
GBP/USD 1.342-1.373 (neutral)
CAD/USD 0.78-0.81 (bullish)
USD/CHF 0.92-0.94 (bullish)
Oil (WTI) 73.91-82.25 (bullish)
Nat Gas 5.29-6.25 (bullish)
Gold 1 (bearish)
Copper 4.10-4.41 (bullish)
Bitcoin 46,690-58,261 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
