"Don’t set out with demands that the roads and the weather and your game treat you fairly.”
-Tom Coyne
Don’t tell anyone, but I’m sneaking out to the land of my ancestors for some golf in June. In order to proactively prepare my mind for this Irish encounter, I’m reading Tom Coyne’s A Course Called Ireland – A Long Walk In Search of a Country, a Pint, and the Next Tee.
While my 17-month traverse of #Quad4 has had many turns, squeezes, and surprises, Coyne’s 4-month walk around Ireland almost got him killed by both a rabid countryside dog and military bullets on a beach. Relatively speaking, I “feel” safe…
Coyne’s advice about a long walk is appropriate for both markets and life: “Expectations will hold you back on your golf trip to Ireland; they’re the only things that can let you down… Visit nine-holers. Get the soup. Wander with an open mind and let the wind take you. It blows hard in Ireland, but it sets you to where you’re meant to be.”
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where the wind isn’t really blowing, but Macro Tourists are chasing. They’re down to a handful of US listed #BubbleCap stocks and completely missing this move in Japan all the while. It’s fun to measure, map, and watch.
As a matter of process, we like to start the week with what most MAGMA chasers are generally Macro Unaware about – Global FX:
- US Dollar Index was up another +0.5% and back to signaling Bullish on both our TRADE and TREND durations
- EUR/USD was down another -0.7% last week and broke bad (i.e. back to bearish TRADE and TREND)
- Japanese Yen continued to get smoked, down another -2.3% vs. USD, and remains Bearish TRADE and TREND
- Russian Ruble dropped -3.1% vs. USD last week taking its 3-month drop to -7.1% = Bearish TRADE and TREND
- Argentine Peso dropped -1.4% vs. USD last week taking its 3-month crash to -17.0% = Bearish TRADE and TREND
Since the ONLY Quad that the US Dollar does this in is in #Quad4, I can obviously see something that MAGMA chasers should (but probably don’t) see. That certainly doesn’t mean that the US Recession in Corporate Profits isn’t happening.
Commodities have been signaling DEEP #Quad4 recession for many months now. That said, Oil finally bounced last week:
- Oil (WTI) had a #Quad4 bear market bounce of +2.2% last week to -9.7% in the last month alone
- Copper barely bounced, +0.1% last week to -8.5% in the last month (down -9.2% in the last 3 months)
- Corn didn’t bounce – it was down another -5.4% last week to -18.2% in the last 3 months #wrecked
- Soybeans were down another -6.0% last week to -14.4% in the last 3 months
- Rice (rough rice) was down -7.7% last week, leading losers in the “Softs”
What’s “soft” is everything from Oil Demand to US Restaurant traffic (check out Howard Penney’s latest on that data #slowing, big time). But demand for “AI” bs narratives remains epic and strong.
Meanwhile both US Credit and the Yield Curve look like the opposite of the NVDA chart:
A) High Yield OAS WIDENED another +6 basis points last week to +477bps over Treasuries
B) Yield Spread (10s minus 2s) re-inverted another – 7 basis points last week to -59 basis points
But, no worries, it was totally normal-non-bubble behavior for the TSLA weekly $180 strike Call Options to trade > 643,000 contracts on Friday, keeping Consumer Discretionary (XLY) +2.5% on the week!
Note: that was the 1st time TSLA weeklies surpassed 0DTE SPY Calls as #1 Most Active US Options contract on the day.
All that said, if you ignore the Credit, FX, and Commodities markets in addition to the Yield Curve, it’s all good out there provided you own the 4 stocks that make up large percentages of the XLY and XLK US Equity Sector Styles:
A) Consumer Discretionary (AMZN + TSLA = > 40% of XLY) bounced +2.5% last week
B) Tech (AAPL + MSFT = > 40% of XLK) was +4.3% last week
In non-AI news, Japanese Stocks (Nikkei225) were up another +0.9% overnight after smoking all major US Equity Indexes last week at +4.8%. in the last month Japanese stocks are +8.8% vs. Russell and NASDAQ -1.4% and +4.1%, respectively.
As a reminder, unlike the US data which continues to decelerate towards new Cycle Lows in Q2, we have Japan re-accelerating into back-to-back #Quad1s. Unlike USA right now, that’s where SMALL CAP and VALUE really work (i.e. in #Quad1).
That’s why I recently added Japanese Small Cap (SCJ) and Japanese Value (EWJV) to the Core Asset Allocation Model. No AI needed.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.73-3.99% (neutral)
UST 10yr Yield 3.32-3.71% (bearish)
UST 2yr Yield 3.83-4.32% (bullish)
High Yield (HYG) 73.67-74.90 (bearish)
SPX 4065-4207 (bearish)
NASDAQ 12,071-12,734 (bearish)
RUT 1 (bearish)
Tech (XLK) 150-159 (bearish)
Gold Miners (GDX) 31.24-36.01 (bullish)
Nikkei 29,116-31,125 (bullish)
VIX 16.02-19.98 (bullish)
USD 101.25-103.81 (bullish)
EUR/USD 1.074-1.098 (bearish)
USD/YEN 134.57-138.95 (bullish)
Oil (WTI) 69.16-73.93 (bearish)
Gold 1 (bullish)
Copper 3.55-3.85 (bearish)
Silver 23.23-26.01 (bullish)
Bitcoin 25,892-28,391 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
