“I came to believe that a leader isn’t good because they are right; they’re good because they’re willing to learn and to trust.”
- General Stanley McChrystal
I trust that everyone living in America paid their Memorial Day respects yesterday. While I don’t have much respect for either the premise or “forecasting process” of the Federal Reserve, I have a lot of respect for our Armed Forces.
The aforementioned quote comes from chapter 5 of a US military and #leadership book that I have been citing lately: The Character Edge. General Caslen calls trust “the straw that stirs the drink.” (pg 101)
Do you trust your colleagues and teammates? Do you trust your risk management #process? Especially during Counter @Hedgeye TREND moves, it’s mission critical to keep those emotions calm and to carry on. Trust your process.
Back to the Global Macro Grind…
What will markets have done by the time we get through May’s month-end (today) and the next Macro Monday @Hedgeye? I don’t know. But I do know that I am grateful for yet another opportunity to position incrementally for #Quad4.
Let’s start with measuring and mapping last week’s Global Currency market moves:
- US Dollar Index had week 2 of a Counter @Hedgeye TREND correction, -1.4% to +6.3% YTD
- EUR/USD was +1.6% towards the top-end of its Risk Range and remains Bearish TRADE and TREND
- Yen was +0.6% vs. USD and remains Bearish @Hedgeye TREND at -9.4% YTD
- GBP/USD bounced +1.2% within its Bearish @Hedgeye TREND to -6.7% YTD
- Brazil’s Real was +3.2% vs. USD taking its TRENDING 3-month return to +9.1% = Bullish TREND
- Swiss Franc was +1.8% vs. USD taking its TRENDING 3-month return to -3.3% = Bearish TREND
Looking at the interplay between my TRADE and TREND durations is always mission critical in terms of contextualizing The Cycle. Clearly the market likes Brazil as a Natural Resource Currency right now. Oil ripping to $119 WTI this morning perpetuates that.
Commodities inflating (again) in May vs. April is a big part of our MONTHLY #Quad3 Nowcast for May INFLATION:
- CRB Commodities Index inflated another +2.5% last week to +4.8% in the last month and NEW CYCLE HIGHS
- Oil (WTI) inflated another +4.3% last week to +14.3% in the last month alone and remains Bullish TREND
- Copper reflated +0.7% last week but has disinflated -3.8% in the last month and remains Bearish TREND
- Natural Gas inflated another +6.7% last week to +17.4% in the last month and remains Bullish TREND
- Oats inflated +14.9% last week to +5.6% in the last month and are back to Bullish TRADE and TREND
Yes, there continues to be a #divergence between Industrial Metals, Rubber, Lumber, etc. (which are all Bearish @Hedgeye TREND Signals) and Oil & Gas, which remain Bullish TRADE and TREND.
Both the “Food At Home” and Oil & Gas components of headline Consumer Price Inflation (CPI) are going to inflate the May INFLATION numbers more than Aluminum disinflating is going to weigh on it.
We’ll see how the Bond Market prices that in, from here, after 3 STRAIGHT DOWN weeks for:
A) The 2yr UST yield which was down another -10 basis points (bps) last week to -12bps in the last month
B) The 10yr UST yield which was down another -4 basis points (bps) last week to -9bps in the last month
This morning, for example, the UST 10yr Yield is bouncing +9bps off the low-end of its Risk Range A) because that’s what things do AFTER they go to the low-end of their Risk Range and B) Oil ramped to $119/barrel WTI.
Treasury Bond Yields, of course (and especially on the long-end of the Yield Curve), are constantly trying to price in The ROC (rate of change) of GROWTH and INFLATION. The higher Oil goes from here, the FASTER Real Consumption GROWTH #slows.
How about stocks? They had a massively huge bear market bounce last week with our best SHORTS bouncing the most:
- NASDAQ bounced +6.8% on the week taking its 3-month TRENDING Return to -11.4%
- Consumer Discretionary (XLY) bounced +9.5% last week taking its 3-month TRENDING Return to -12.7%
- Tech (XLK) bounced +7.9% last week taking its 3-month TRENDING Return to -8.4%
Not to be confused with a place where your hard earned capital didn’t crash (like the US Dollar which has a Full Investing Cycle Return of +5.2% in the last 3 months), bear market bounces are what they are (i.e. sometimes violent!).
Not unlike Bond Yields bouncing today, don’t forget that Bears Bounce AFTER they go down towards the LOW-END of my Risk Ranges. It might seem like forever ago, but it was only on this DAY last week where the NASDAQ was -29.8% from its Cycle Peak!
I’m not a decent leader because I’m always “right.” I think my followers and teammates consider me a good leader because I’m willing to learn from both my experience and Cycles while patiently trusting my Full Investing Cycle #process.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.65-2.98% (bullish)
UST 2yr Yield 2.39-2.75% (bullish)
High Yield (HYG) 74.70-80.42 (bearish)
SPX 3 (bearish)
NASDAQ 11,004-12,192 (bearish)
RUT 1 (bearish)
Tech (XLK) 127-143 (bearish)
Utilities (XLU) 70.57-75.96 (bullish)
VIX 25.08-32.56 (bullish)
USD 101.08-104.75 (bullish)
EUR/USD 1.038-1.082 (bearish)
USD/YEN 126.35-129.21 (bullish)
GBP/USD 1.224-1.271 (bearish)
Oil (WTI) 108.10-119.64 (bullish)
Nat Gas 7.90-9.28 (bullish)
Gold 1 (bullish)
Copper 4.15-4.38 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
