“It is a capital mistake to theorize before one has data”
- Sherlock Holmes
The market is up 17% from its cycle low this morning. From my previous note on 7/28: “In 2000 the average up move was +15% and the average down move was -18%. For 2008 the average up move was +12% and the average down move was -19%. The largest bear market bounce in our current market is +17%, in 2008 +23%, and in 2000 +21%."
I will not use this Early Look to dispel narratives because
- I only read numbers
- I have no clue what is being said.
Although, what I did in the time I would have wasted reading non numbers… is simply find new data sets! Now buckle up, as I will take you through a brand new data set along with everything on my screen today.
You can call it a data dump, but I like to call it a data transformation. I’m just not a fan of dumps.
Back to the Global Macro Grind…
I’m going to start us off with a new data set. It is a combination of country central banks (cent) and collections of commercial banks (comm). I then look at the YoY growth of their total assets in the countries' local currency. I personally don’t focus on the actual numbers too much; I’m really just looking for the rate of change. You can see that like most equity markets, the banks grew to all time highs (ATHs) in Feb 2021. But ever since have been decelerating total assets. Your exceptions to this are: Spain $EWP, Saudi Arabia $KSA, and Turkey $TUR. Then we have South Korea $EWY that had a large one month YoY increase in June (more on that below). The countries that have negative total asset growth are: Switzerland $EWL, Canada $EWC, Thailand $THD, and India $INDA.
Why stop there though, this next chart converts the countries local currency to dollars. Then calculates the YoY change in the total assets. It looks much the same although purchasing power in USD terms has decelerated meaningfully. The list of countries with negative total asset growth expands from 4 countries to 25 of the 39 countries. Turkey is in the list of countries printing in local currency although their currency is falling (joining that list is South Korea). Check out my Early Look on 8/12 which contains a chart comparing Italy’s total assets YoY with their sovereign CDS. I will also put a chart on twitter for another country (I can’t drown this with charts, I have ~60 of them…). The next major callout is the Middle East which is the only part of the world with trending upwards total assets: United Arab Emirates $UAE and Saudi Arabia. Chart on Saudi Arabia below.
From a global standpoint, not only are countries raising interest rates, but they are also tightening their economies, and finally losing purchasing power with the most recent moves in the dollar $UUP. Not the best setup and I doubt that the bottom is in US Stonks crowd has priced this into their companies with 20% to +30% international revenue exposure.
Shifting to more of a US exposure. I recommend having the charts from the Early Look on 7/14 next to you while I update you on these numbers coming from US commercial bank balance sheets. Total Assets YoY have since decelerated to +5.0% YoY. Bank Loan and Lease Assets YoY has continued to accelerate to +10.7% YoY. Commercial & Industrial loans accelerated to +11.5% YoY. Deposit Liabilities continued to decelerate to +4.2% YoY.
Now let’s get into the daily data for the immediate term trades.
The ETFs up the most yesterday: Natural Gas $UNG (+5.6%), Small Cap Consumer Discretionary $PSCD (+2.9%), Turkey (+2.6%), Online Retail $IBUY (+2.0%), Philippines $EPHE (+1.9%), and Greece $GREK (+1.3%).
The ETFs down the most yesterday: Biotech $XBI (-2.6%), Corn $CORN (-2.5%), Brent Oil $BNO (-2.5%), Rare Earth Metals (-2.4%), US Oil $USO (-2.3%), Wheat $WEAT (-2%), and Soybeans $SOYB (-2.0%).
In your go anywhere strategy: Natural Gas continued to outperform (remains the most volatile asset as well), high short interest retail stocks got squeezed, and we continued to get paid on the short side of commodities.
Russell and Nasdaq volatility closed in the chop bucket with the VIX closing sub 20.
The 2-10 spread remains squarely inverted at -43 bps with the forward curve remaining inverted at -32 bps. The countries with the largest WoW declines in their 2-10 spreads are the UK, Indonesia $IDX, Norway, Israel $EIS, Colombia $GXG, and Peru $EPU. There are also 10 of 36 countries with inverted curves. New to that list is the UK and New Zealand $ENZL. The countries with the largest WoW acceleration in their 2-10 spreads are Czech Republic, Philippines $EPHE, and Greece $GREK.
IVOL Discount Callouts: Japan $EWJ, Thailand $THD, South Africa $EZA, Timber $WOOD, Copper Miners $COPX, Robotics $ROBO, Pharmaceutical $PJP, Corn $CORN, Soybean $SOYB, Wheat $WEAT, Yen $FXY, Tips $TIP
IVOL Premium Callouts: Switzerland $EWL, New Zealand $ENZL, Turkey $TUR, Self-Driving Cars $IDRV, Rare earth metals $REMX. Including our full IVOL table.
We recently added 27 sovereign CDS tickers to our financials systemic risk tracker. Here’s what it is showing us today: Turkey and South Africa $EZA reaccelerate DoD, Hong Kong CDS accelerates the most MoM.
Of the 36 countries that have reported CPI for July, 24 of them have accelerated. Of the 15 countries that have report July PPI, 4 of them have accelerated.
30 countries reported retail sales in June, 20 of them saw a deceleration. While the Eurozone, Germany $EWG, UK, Brazil $EWZ, Russia $RSX, Sweden $EWD, Belgium $EWK, Austria, Norway, Hong Kong $EWH, Denmark $EDEN, and Chile $ECH all had negative growth (11).
Lastly here is the data that came out overnight:
- New Zealand raises rates by 50 bps to 3.0%. The central bank is predicting that inflation will return to its target by 2024 and also said "Monetary tightening needed with a peak at 4.1% in March 2023"
- Japan Exports decrease from +19.3% YoY to +19% YoY, first deceleration after 3 months of accelerations
- Finland $EFNL GDP decreases to +0.97% YoY to +2.6% YoY, decelerating since July 2021
- Great Britain input PPI decelerates to +22.6% YoY (down from last months all time high), output PPI accelerates to +12.3% YoY (highest since Jun 1980), retail prices accelerate to +12.3% YoY (highest since Mar 1981), and CPI accelerates to +10.1% YoY from +9.4% YoY (10th consecutive acceleration and the highest since Feb 1982).
- GB saw its first decrease, only problem is it is the very first part of the supply chain
- Norway Consumer Confidence for Q3 decelerates to an all-time low
- Poland $EPOL Q2 GDP decelerates
- Eurozone Q2 GDP decelerates
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.93-3.19% (bullish)
UST 10yr Yield 2.67-2.94% (bearish)
UST 2yr Yield 3.05-3.36% (bullish)
High Yield (HYG) 76.20-79.14 (bearish)
SPX 4011-4319 (bearish)
NASDAQ 11,886-13,160 (bearish)
RUT 1 (bearish)
Tech (XLK) 137-152 (bearish)
Utilities (XLU) 72.94-78.17 (bullish)
Healthcare (PINK) 25.43-26.70 (bullish)
Have a great day out there,
Ryan Ricci
Macro analyst
