Rates Hit Peak Panic

“Even if our vision is blurry, it acts as a North Star to guide us.”
- Aiden McCullen 

Imagine you had no #process? Imagine you woke up to play The Game every morning with only clickbait about the latest uniquely American short-term market panic? Imagine the cover of Barron’s was your macro North Star?

As the Irishman, McCullen, reminded me in Undisruptable, “without vision (or process) we may think we are busy but might be wandering aimlessly… once you set a vision you activate your RAS (reticular activating system)…”

The RAS is a “part of your brain that filters information that you deem important” (pg 66). For example, while people are panicking about rear-view #Quad2 economic data, we could easily see our 1^st sequential downtick in the CPI on Wednesday.

Back to the Global Macro Grind…

Welcome to a big Macro Monday @Hedgeye where the UST 10yr Yield took a peek at a potential local peak of 1.81%, then backed off. Imagine it goes back towards 1.43% by Friday? The Risk Range™ Signal can.

Can my process and PA handle being wrong for another week? Sure. I won’t like that. But I didn’t like being “wrong” on the Inflation & Rate Cycle peaking in the 1st two weeks of October 2018 either.

Our North Star is our #process. So instead of being distracted, let’s look at that via the FX market first:

1. US Dollar Index didn’t panic last week – it was +0.1% and remains Bullish TRADE and TREND @Hedgeye 
2. EUR/USD was -0.1% last week and remains Bearish TRADE and TREND
3. Japanese Yen was down another -0.4% vs. USD last week and also remains Bearish TRADE and TREND
4. GBP/USD was +0.4% and flipped back to Bullish TREND which is new #PayAttention
5. Brazilian Real was down another -1.2% last week and remains Bearish TRADE and TREND

Brazilian Stocks (Bovespa) also remain Bearish TRADE and TREND @Hedgeye and have recently entered our Top 3 Country SELL Signals in terms of Risk Range™ Signal Strength with the Bovespa down -2.0% last week to -7.1% in the last 3 months.

Yeah, we got plenty of things to buy and sell in Global Macro at this point. As an Asset Class, I’ve sold my longstanding Bull Case on Commodities, right as Barron’s put “Commodities Price Boom” on its cover this weekend:

1. CRB Commodities Index reflated +2.4% to lower-highs last week but held Bullish @Hedgeye TREND support
2. Oil (WTI) had a big reflation week (to lower Cycle highs as well) with a +4.9% move back above my TREND Signal
3. Dr. Copper didn’t confirm a new raging bull in Commodities, disinflating -1.2% on the week to Neutral TREND
4. Wheat disinflated -1.6% last week to -6.2% in the last month after breaking bad to Bearish TREND
5. Sugar deflated -4.4% last week to -7.3% in the last month and remains Bearish TRADE and TREND

Before you run out there and short Sugar (CANE), it’s now A) the most consensus bearish lean in all of Global Macro (CFTC futures & options positioning) and B) at the low-end of my Risk Range™ Signal. Wait for a bounce.

So yeah, I get it. When the UST 10yr Yield ramps +25 basis points on the week, people panic. That’s what they are paid to do when they’re getting stopped out (or at least their bosses are hitting the panic button on their books).

To put panic-selling of Treasuries in context, last week’s $1.4 BILLION in TLT outflows was almost 10% of the ETFs AUM!

Moving along as the MOVE (Treasury Bond Volatility) Index continues to signal a series of lower-highs for The Cycle inasmuch as Commodities are, if you look at Global Equities there was no panic there either last week:

1. France’s stock market (Top 3 European Signal Strength) was up another +0.9% to +9.4% in the last 3 months
2. Austria’s stock market was up another +2.9% last week to +7.9% in the last 3 months
3. Indonesia’s stock market was up another +1.8% last week to +4.4% in the last 3 months

And it’s not like these countries didn’t have rates rising. Btw, remember the time that those with no process or vision sold Austria on “covid country lockdown?” #BeBetter

In the US, the Equity market looked more like a super late in The Game revival of our former #Quad2 positioning with:

A) Energy Stocks (XLE) going vertical for a +10.5% weekly gain (back to Bullish TRADE and TREND)
B) Financials (XLF) up a big +5.4% and back to Bullish TRADE and TREND

And what’s The Quad where “everything goes up”? Not #Quad2 (because that’s the one where rates go up). A: Quad One.

So don’t panic like you never have in your career on “Fed Minutes” or whatever #clickbait Doomberg is running with this morning. Take a deep breath. Find your North Star. And get to where the puck is going instead of where it’s been.

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

UST 10yr Yield 1.43-1.81% (bullish)
UST 2yr Yield 0.68-0.89% (bullish)
SPX 4 (bullish)
NASDAQ 14,821-16,140 (neutral)
RUT 2166-2301 (neutral)
Tech (XLK) 164.71-179.20 (bullish)
Consumer Discretionary (XLY) 198-211 (bullish)
Housing (ITB) 75.12-84.21 (bullish)
REITS (XLRE) 48.72-52.67 (bullish)
DAX 15,695-16,271 (bullish)
VIX 15.19-20.31 (bearish)
USD 95.55-96.56 (bullish)
EUR/USD 1.126-1.139 (bearish)
USD/YEN 114.40-116.40 (bullish)
GBP/USD 1.342-1.362 (bullish)
Oil (WTI) 74.18-79.84 (bullish)
Gold 1 (bullish)
Copper 4.27-4.50 (neutral)
Bitcoin 40,993-48,916 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer