Low Emotions

“Nobody in this world can tell me what to think, but I think everybody has a lesson to teach me.”
– Lex Fridman

It was just last week when we had Q3 Macro Themes (which I have come to enjoy quite a bit here at Hedgeye). I understand that the main feature of our Macro Themes is used by many to measure and map the global economy. Alternatively however, I like to shift my observational kaleidoscope when digesting our Themes presentation to better understand our thought process on the Macro team. When else does someone tell you exactly what is on their mind?

Almost never.

With that I’m going to stick to my trend of not telling you what to think, but instead giving you as much data as possible so you can be well armed when fighting the good fight against the “Old Wall.”

Back to the Global Macro Grind…

I introduced a data set last week that we created internally, and we received such high demand for it I will stick with it for one more week.

But that is already too many words for me, let’s carry the boat.

Here are your tickers that went up the most in the last week, I put the respective YTD returns next to each: Biotech $XBI (-25%), Solar $TAN (-2.5%), Online Retail $IBUY (-48%), Homebuilders $XHB (-32%), Blockchain $BLOK (-51%), and Cloud Computing $SKYY (-32%).

These are your tickers that went down the most this week, I put the respective monthly returns next to each: Wheat $WEAT (-23%), Corn $CORN (-15%), Oil & Gas Services $PXJ (-28%), U.S. Oil $USO (-15%), Grains $GRU (-17%), Soybeans $SOYB (-11%), Gasoline $UGA (-16%), Silver $SLV (-14%), and Silver Miners $SIL (-20%). This includes yesterday’s bounce.

Either you were positioned for those past moves or not, it is the scoreboard of your championship game that happens every day. Let’s get into the setup.

Here is what went up the most yesterday: Natural Gas $UNG (+12%), Small Cap Energy (+6.7%), Nat Gas Producers $FCG (+6.3%), Copper Producers $COPX (+6.1%), Uranium $URA (+6%), Gasoline $UGA (+6%), Solar $TAN (+5.6%), Oil & Gas Services $PXJ (+5.5%), and Blockchain $BLOK (+5.3%). A copy of the list of the tickers that went down the most in the last week and on top of that we had decelerating monthly volume (-3%).

So… the tickers that bounced yesterday are the same tickers that were crashing on a monthly basis and helped you generate alpha within in the week.

One last point on yesterday, here are the upside to downside ratios entering yesterday’s open via our risk range product: WTI Crude Oil – 8:1, Natural Gas – 5:1 and Copper 6:1. Subscribe to the risk range product to see today’s upside to downside risk, they change every day.

Here are the IVOL Discount callouts for the morning: S&P 500 $VOO, Russell $IWM, Netherlands $EWN, Australia $EWA, South Africa $EZA, Nat Gas Trust $FCG, Aerospace & Defense $ITA, Online Retail $IBUY, Semiconductors $PSI, Cybersecurity $CIBR, Cloud Computing $SKYY, Pharmaceutical $PJP, Healthcare Providers $IHF, Medical Devices $IHI, Small Cap Energy $PSCE, Soybean $SOYB, Swiss Franc $FXF, 1-3yr Govt Bonds $SHY, High Yield Corporate Bonds $HYG

Here are the IVOL Premium callouts for the morning: Wind $FAN, 10+yr Corp. Bonds $IGLB

Let’s dive into some micro data.

The commodities that have crashed this month (7 of 32 or 22%): Oats (-34%), Natural Gas (-29%), Nickel (-27%), Ferrous Scrap (-24%), Cotton (-23%), Wheat (-22%), and Copper (-20%). Some honorable mentions that are looking to join the crashing club: RBOB Gasoline (-19%), Corn (-16%), WTI Crude Oil (-16%), Heating Oil (-15%), and Platinum (-15%). Way more interesting are the 30D correlations to the Dollar, 24 of the 32 or 75% of the commodities have significant negative correlations (last image). Only two commodities have positive correlations to the dollar: Live Cattle and Dutch – Natural Gas.

Speaking of the dollar, let’s look across all the ETFs we track and find the actual impact of this dollar breakout. 145 of 163 ETFs or 89% have a strong negative correlation on 30D basis (below a -0.5). With the only strong positive correlation coming from China Large Cap $FXI with Biotech $XBI and Cancer $CNCR have the next closest strong correlations.

But let’s focus on your strongest negative correlations. Anything with less than a -0.9 30D correlation, with the 3M return referenced: Euro $FXE (-6.7%), British Pound $FXB (-8.1%), Short Term Int. Govt. Bonds $BWZ (-7.7%), Spain, $EWP (-12%), Greece $GREK (-17%), Portugal $PGAL (-9%), Italy $EWI (-18%), Germany $EWG (-19%), Austria $EWO (-17%), Poland $EPOL (-25%), Ireland $EIRL (-15%), Finland $EFNL (-16%), Indonesia $IDX (-12%), U.K. $EWU (-13%), France $EWQ (-14%), Belgium $EWK (-16%), Silver Miners $SIL (-32%), Norway $NORW (-19%), Mexico $EWW (-15%), Argentina $ARGT (-29%), Thailand $THD (-12%), Malaysia $EWM (-16%), Australian Dollar $FXA (-8.6%), Emerging Market Govt. Bonds $PCY (-16%), and International Corporate Bonds $PICB (-12%). Essentially, all of Europe and some Emerging Markets.

A strong dollar will increase the buying power of the U.S. and decreases the buying power of foreign currency. Although, you typically see the strongest impact on emerging markets. Specifically, LATAM where $ILF has a -0.635 correlation to the USD since 2003. See the chart of the day.

Lastly, I wanted to give you the tally of tickers that have crashed since their respective cycle peaks for our equity ETFs (I’ll see if we can put the list on @hedgeye). There are 92 of 117 ETFs (79%) that are currently crashing and 100 of 117 ETFs (85%) that have already crashed this year. These are some of the tickers that have yet to crash, referenced are their cycle high to cycle low returns: Global Infrastructure $GII (-13%), Nuclear $NLR (-15%), Property & Casualty Insurance $KBWP (-15%), Insurance $KIE (-16%), and Food & Beverage $PBJ (-16%).

Transitioning to the high frequency world macro data that came out this morning.

• Indonesia $IDX Consumer Confidence (June) slowed to 128.2 from 128.9, down from an ATH
• Italy $EWI Industrial Production (May) slowed to +3.4% YoY from +3.9% YoY
• Crude Oil Inventories (7/1) accelerated to -4.9% YoY from -8.1% YoY
• Within its 5yr range although still low historically
• Natural Gas Inventories (7/1) accelerated to -10% YoY from -17% YoY
• Distillate Inventories (7/1) decelerated to -19.9% YoY from -18% YoY
• Well below its 5yr range
• Gasoline Inventories (7/1) accelerated to -7.0% YoY from -8.3% YoY
• Well below its 5yr range
• Propane Inventories (7/1) accelerated to -5.3% YoY from -6.1% YoY
• Below its 5yr range
• The next rate hike will come from New Zealand on 7/13 with the market pricing in 2 (25 bps) rate hikes
• The Current 2-10 Spread is at -3 bps while the 1 year forward 2-10 spread is at 4 bps
• Cycle highs in CDS from 11 of 86 equity and sovereign countries we track
• Coming from Japan, India, and Germany
• VIX Closed at 26.3 (Chop Bucket), Russell Vol closed at 31.5 (F Bucket), and Nasdaq Vol closed at 32.8 (F Bucket)
• Via this mornings Risk Range, the VIX has an upside to downside ratio of 13:1

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

UST 10yr Yield 2.78-3.31% (bullish)
UST 2yr Yield 2.79-3.20% (bullish)
High Yield (HYG) 72.74-75.05 (bearish)            
SPX 3 (bearish)
NASDAQ 10,818-11,727 (bearish)
RUT 1 (bearish)
Tech (XLK) 125-134 (bearish)
VIX 25.93-31.04 (bullish)
USD 104.24-107.62 (bullish)

Have a lovely summer weekend all!

Ryan Ricci
Macro analyst