“No one is going to come help you. No one's coming to save you.”
– David Goggins (Can’t Hurt Me)
It’s nice to finally meet more of Hedgeye!
For those of you who don’t know me yet, my name is Ryan Ricci. I joined Hedgeye just under a year ago. My sole purpose since being welcomed aboard the Macro team has been to learn the #process along side you. The Old Wall denied me for years, a blessing in disguise because now I have no Old Wall baggage before coming here. But, I do have a big chip on my shoulder and a deep desire to work and win for the Hedgeye team.
If you had a chance to check out the Hedgeye Summer Reading List, you’d have noticed that I’m a big fan of David Goggins. He's a former Navy Seal and an accomplished ultramarathon runner. I don't follow him because of his athletic prowess, but because of his powerful way of thinking and approaching life.
After attending the recent #HedgeyeLive, I’ve realized that’s what brings us together as a team. Whether we realize it or not.
But enough rambling, it’s the first Friday of summer! Let’s get to the fun part of the morning… the data.
Back to the Global Macro Grind…
Everyone keeps asking if the bottom is in. I'm going to present some of the data on my screen today. You tell me what you think.
Today we have cycle highs in the Euribor-OIS (32 bps) and High Yield OAS (5.25%). We have also seen a broadening in 5yr credit default swaps across the 86 equity and sovereign countries we track. Specifically, we have cycle highs in 22 of the 86 this morning: $RY – U.S. (60 bps), BNP Paribas – France (72 bps), Credit Agricole – France (67 bps), Deutsche - Germany (118 bps), Bank of Scotland – Scotland (233 bps), $CAM - Spain (138 bps), Credit Suisse – Switzerland (185 bps), UBS – Switzerland (76 bps), Barclays – U.K. (114 bps), Aviva – U.K. (100 bps), Bank of Tokyo – Japan (53 bps), Westpac – Australia (66 bps), United States (19 bps), Brazil (294 bps), and Mexico (170 bps).
We care more about the Rate of Change of these, not as much the level.
Global M2 YoY peaked in February 2021, with most countries seeing the largest Year-Over-Year increase of money supply in their Countries history (ATHs). We saw the effects of this in the ensuing months as the Russell 2000 and Bitcoin peaked on the same day, November the 8th. But what works one way will have the same affect in the opposite direction.
There are decelerations in the YoY M2 for the: U.S. $VOO, Japan $EWJ, Eurozone, Germany $EWG, U.K. $EWU, France $EWQ, Italy $EWI, Canada $EWC, Turkey $TUR, Switzerland $EWL, Poland $EPOL, Austria $EWO, Hong Kong $EWH, Ireland $EIRL, Singapore $EWS, Chile $ECH, Finland $EFNL, Czech Republic, Peru $EPU, and Greece $GREK. Accelerations are happening in: China $KWEB, Russia $RSX, Indonesia $IDX, and Portugal $PGAL.
Quick math: the U.S. M2 is currently growing at +8% YoY as of April 22, this is down from +18.3% YoY in April 21 and down from +11.8% YoY in Jan 22. The difference between growing +8% vs +18.3% is a loss of $2.06 trillion and the difference between growing +8% and +11.8% is a loss of $756 Billion #declerations.
There has also been a wave of central banks tightening by raising their federal funds rates (we will leave central bank balance sheets for another day). Let’s check in on how the equity markets like this:
- Russia has raised rates by 1,050 bps since Feb 22 – equities down -64% since
- Sweden $EWD has raised rates by 25 bps since Feb 22 – down -30%
- New Zealand $ENZL has raised rates by 175 bps since Aug 21 – down -26%
- Australia $EWA has raised rates by 75 bps Apr 22 – down -22%
- Brazil $EWZ has raised rates by 1,125 bps since Feb 21 – down -15%
- South Korea $EWY has raised rates by 150 bps since Mar 22 – down -14%
- India $INDA has raised rates by 90 bps since Apr 22 – down -13%
- Canada has raised rates by 150 bps since Mar 22 – down -12%
- Saudi Arabia $KSA has raised rates by 125 bps since Mar 22 – down -12%
- U.S. has raised rates by 150 bps since Mar 22 – down -9%
- Nigeria $NGE has raised rates by 150 bps since May 22 – down -9%
- Great Britain has raised rates by 115 bps since Dec 2021 – down -7%
- Switzerland has raised rates by 50 bps since Jun 2022 – up +1%
The market is pricing in 7 more (25 bps) hikes for the U.S. by Dec 2022, 5 hikes for Canada, 15 hikes for the Eurozone, 7 hikes for Great Britain, 2 hikes for Sweden, 9 hikes for Australia, 8 hikes for New Zealand, and 2 hikes for India. I felt like Oprah Winfrey handing out free cars listing all of that out.
The U.S. 1 year forward yield curve has been inverted since 2/18/2022 and currently sits at -8 bps. While the current U.S. 2-10 spread is 7 bps wide. This is while 2-10 spreads are already inverted for Brazil, Mexico $EWW, Poland, and Czech Republic.
Our Director of Research Daryl Jones broke down the inflation environment in Wednesday’s Early Look. So allow me to break down what the global consumer is thinking about all of this data through the lens of consumer confidence.
The latest consumer confidence reading in the: Eurozone = lowest since 2013, U.K. = all time low (data going back to 1981), Turkey = all time low (data going back to 2007), Sweden = lowest since 1996, Austria = lowest since 2008, Denmark $EDEN = all time low (data going back to 1985), Czech Republic = lowest since 2012.
That is just some of what is on my screen for the current macro environment. But for how you can trade around this data, check out the Chart of the Day below. It is the IVOL Table you are used to, only extended out for U.S. Subsector ETFs.
- There are significant IVOL Discounts in: S&P $VOO, Nasdaq $QQQ, Russell $IWM, U.K. $EWU, France $EWQ, Argentina $ARGT, Thailand $THD, South Africa $EZA, Online Retail $IBUY, Gaming $BJK, Cybersecurity $CIBR, Healthcare Provider $IHF, Medical Devices $IHI, Healthcare Equipment $XHE, Euro $FXE, Sterling $FXB, Franc $FXF, 1-3yr Treasury $SHY, Muni’s ($TFI, High Yield $HYD), Convertible Bonds $CWB, Senior Loans $BKLN
- There are significant IVOL premiums in: Saudi Arabia $KSA, Turkey $TUR, Oil & Gas Services $PXJ, Gasoline $UGA, Sugar $CANE
No thesis here. This is simply what the numbers are on my screen today.
What do you see?
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 3.02-3.54% (bullish)
UST 2yr Yield 2.87-3.50% (bullish)
High Yield (HYG) 71.95-76.02 (bearish)
SPX 3 (bearish)
NASDAQ 10,405-11,428 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-132 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 25,354-26,784 (bearish)
DAX 12,775-13,321 (bearish)
VIX 27.10-35.71 (bullish)
USD 102.75-106.02 (bullish)
Have a wonderful weekend,
Ryan Ricci
Macro analyst
