“Keep hammering”
– Cameron Hanes
Good morning everyone and happy Friday!
After listening to the recent Twitter Spaces session on hosted on Wednesday evening, I can tell that there are some newer subscribers that are starting to panic a little after this latest bear market bounce.
Additionally, one of my core duties is updating the team on the various international indicators. So get your pencils out, and let's take a deeper dive into what was jumping off my page this week.
Back to the Global Macro Grind…
It kind of surprises me just how quickly us humans forget our longer term plans after having short term obstacles.
Yes, our 152 page slide deck didn’t just disappear overnight. Yes, it still comes to the same conclusions of a global Quad 4 Recession, a Profit Recession that only gets worse in the back half of the year, and peak inflation.
From Dr. Drake yesterday on GDP: “3Q22 GDP came in at +2.6%. Net Exports Contributed +2.77 pts to that figure. Consumption slowed with Goods spending leading the downside. Gov’t finally flipped to a moderate positive contribution while Investment continued to weaken with Resi/NonResi both soft while the drag from Inventories moderated.”
The US 30yr Yield hit 4.4% (a cycle high), just on Tuesday… Sure its down to 4.12% today, but don’t forget where we came from.
Where we stand on this cycle compared to previous cycles: This most recent rally was only for 8%...
The same is true for the Dollar, it doesn’t just go up in a straight line. If this was 1980 (which its not) the dollar bull market is only 30% done (For 2002 the dollar bull market would be only 39% done). Dollar from Jan 1980 – Mar 1985: +95%, Dollar from Jun 1998 – Mar 2002: +28%, Dollar from May 2021 – current: +27%.
Bank of China $FXI CDS continued to accelerate after Sunday’s National Congress meeting. Up 30 bps (23%) WoW and 36 bps (30%) MoM. China Remains the number one world exporter at 12.7% of world exports.
China industrial profits were down -2.3% YoY from -2.1% YoY, remaining negative for the 3rd consecutive month. Profits at state-owned industrial firms grew +3.8%; while those in the private sector fell -8.1%. ferrous metal smelting and rolling (-91.4%).
The sovereign CDS of New Zealand $ENZL looks no different than China’s. Up 4 bps (13%) DoD and 12 bps (49%) MoM.
New Zealand’s 2-10 spread inverted again.
Indonesia’s 2-10 spread disconnected from equities. Down -33% over three days. This is while equities $IDX are up 4% on the week.
The ECB raises rates by 75 bps. The EUR/USD is down -18% from its cycle high. Eurozone PPI is at all time highs (+43% YoY) with a CPI-PPI Divergences of 6.0 Z Score. Oh ya, don’t look at the Eurozone’s mortgage market either… Most loans are variable and the ones that are fixed will be refinanced in mid-2023 (peak rate expectations).
This morning we also received GDP from France $EWQ, Spain $EWP, and Germany $EWG. All of which decelerated YoY.
This morning we received inflation numbers from France (+6.2% YoY), Spain (+7.3% YoY) and Italy $EWI (+11.9% YoY). Both Italy and France had inflation accelerating from the previous month.
On the PPI front, France (+28.5% YoY), and Italy (+41.8% YoY). Bringing the CPI-PPI Divergence for each country to a 4.9 Z Score and a 5.7 Z Score respectively.
Sweden $EWD M2 Continues to decelerate.
Bank of Canada $EWC raises rates by 50 bps, while CDOR-OIS reaccelerated on the week (+12 bps), and the 2-10 spread remains inverted at -60 bps. 33% of households also have variable rate mortgages in Canada.
Colombia $GXG and Peru’s $EPU 2-10 spread had large WoW declines while their equities diverged.
Honorable mentions from the week:
- Sovereign South Korean $EWY CDS was up 8 bps (15%) WoW
- Australia $EWA Inflation accelerates to its highest level since 1990. Australian PPI +6.4% YoY its highest since 1999.
- Singapore’s $EWS inflation accelerated to its highest level since 2008
- PMI’s across Europe came in at contractionary levels
- Covid Cases in China stayed sticky high
- Italian consumer confidence come in at the worst level since May 2012
- Denmark $EDEN retail sales remain negative for 5th straight month -5.4% YoY (Sep) from -5.2% YoY last month
- Norway $NORW retail sales remained negative for the 5th straight month -4.4% YoY from -2.3% YoY
- Eurozone sentiment had its 8th sequential deceleration, lowest since November 2020. Manufacturers (-1.2 vs -0.3 in September), service providers (1.8 vs 4.4), and consumers (-27.8 vs -28.8
- The BoJ remains committed to unlimited bonds to hold a 0.25% cap
The current setup:
- IVOL Discount Callouts: Sweden $EWD, Saudi Arabia $KSA, Turkey $TUR, Clean Energy $PBD, Nat Gas $FCG, Pharma $PJP, Insurance $KIE, Small cap Energy $PSCE, Silver $SLV, Euro $FXE
- IVOL Premium Callouts: Taiwan $EWT, Online Retail $IBUY, Leisure $PEJ, Healthcare Equipment $XHE
- The sectors up the most yesterday: Carbon Offsets $KRBN (+3.75%), Brazil $EWZ (+3.03%), and Vietnam $VNM (+2.6%)
- The current yield curve is at -38 bps with the 1 yr forward curve at -30 bps
- On the week post earnings: Amazon -12.7%, Google -9%, Microsoft -8%, and Meta -19%
- European yields are ramping on the morning with Italian yields up 21 bps on the day
- China down -2.3% overnight with Hong Kong $EWH down -3.7%
This type of stuff only happens in Quad 4.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 3.88-4.32% (bullish)
UST 2yr Yield 4.30-4.65% (bullish)
High Yield (HYG) 70.89-74.16 (bearish)
SPX 3 (bearish)
NASDAQ 10,301-11,191 (bearish)
RUT 1 (bearish)
Tech (XLK) 116-129 (bearish)
Energy (XLE) 80.34-90.98 (bullish)
Financials (XLF) 30.45-33.71 (bearish) `
Shanghai Comp 2 (bearish)
Nikkei 26,304-27,535 (bearish)
DAX 12,213-13,296 (bearish)
VIX 26.65-33.21 (bullish)
USD 109.35-114.01 (bullish)
Oil (WTI) 81.38-90.16 (bearish)
Nat Gas 4.87-6.45 (bearish)
Gold 1 (bearish)
Have a great day out there,
Ryan Ricci
Macro analyst
