“Every limit is a beginning as well as an ending.”
-George Eliot
That’s a good quote that Adam Grant used to introduce Chapter 5 of Hidden Potential: “Getting Unstuck – The Roundabout Path To Forward Progress.”
You ever get stuck overstaying your welcome on Asset Allocations or stock picks? Everyone does. Not everyone has a risk management #process that goes both ways, however. If you have friends who are still stuck on the 6-12 “rate cuts and “victory on inflation” narrative, remind them that there’s a #BetterWay.
We’re dropping our big Q2 Macro Themes deck on Thursday and we’ll review: USA’s Transition Towards #Quad2, #HFL (Higher For Longer), Deficits, Debt, and the stealth re-emergence of Global #Quad2 in Q2 of 2024.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where the measuring and mapping (from last week’s Global Macro Market moves and reported economic data) has already been done. We’ll review that research now.
Let’s start with what the Global Currency Market was signaling last week:
- US Dollar Index was up +0.7% (up for the 1st week in 4) and remains Bearish TREND @Hedgeye
- EUR/USD corrected -0.7% in kind but remains Bullish on both our TRADE and TREND durations
- Yen was down -1.4% vs. USD last week and moved back to a Neutral Signal vs. USD
- GBP/USD corrected -1.1% last week but didn’t break TRADE and remains Bullish TREND as well
- Canadian Dollar was down -0.6% vs. USD and broke down back to Bearish TRADE and TREND
- New Zealand Kiwi was down a big -1.7% vs. USD and also remains Bearish TRADE and TREND
“Why do you care about New Zealand?” A: because the fractal universe cares about everything, why don’t you?
If you already have Global #Quad2 (i.e. where INFLATION is re-accelerating), you have even more inflation, locally (in New Zealand, Canada, etc.) if the Purchasing Power of The People is falling via a weakening currency.
New Zealand (which I trade via ENZL) is easily one of the weakest Country Level ETFs that trades. That’s saying something in a Global Equity Market that continues to see a BROADENING of the rally.
We’re also seeing the BROADENING (going all CAPS on you already this morning!) into Commodities in #Quad2:
- CRB Commodities Index inflated +2.9% last week to +4.9% and +7.4% in the last 1 and 3 months
- Oil (WTI) inflated another +3.9% last week to +4.4% and +12.1% in the last 1 and 3 months
- Dr. Copper inflated +6.0% for us last week to +9.8% and +6.0% in the last 1 and 3 months
- Corn continued to disinflate -0.7% last week to -9.6% in the last 3 months (still short CORN)
- Lean Hogs inflated +3.0% last week taking its TRENDING inflation to +20.9% in the last 3 months
- Cocoa inflated +25.4% last week taking its TRENDING inflation to +88.9% in the last 3 months
Evidently the non-fractally oriented political dude at the Chicago Fed (Goolsbee) doesn’t eat bacon or chocolate. You’re probably paying (via taxes) for the gas in his car too.
Instead of believing these government clowns on inflation, we are long of it and getting paid. We’re Long Gasoline via UGA in our Portfolio Solutions product and it inflated +7.7% for The Fam last week alone.
The problem, of course, for The People is that A) most of them don’t have Portfolio Solutions and B) are going to eat it in rising real cost of living terms. Inflation should rise even faster if Powell cuts rates into #Quad2.
Yellen and Goolsbee may not want you to “get it”, but The Bond Market just did:
A) Short-End (UST 2yr Yield) ramped +25 basis points last week and remains Bullish TREND
B) Long-End (UST 10yr Yield) ramped +23 basis points last week and remains Bullish TREND
C) High Yield OAS Spread fell another -12 basis points last week and HYG remains Bullish TREND
Why would High Yield Spreads like #Quad2? A: when GROWTH and INFLATION (especially for Cyclicals and Small Caps that have been in a Profit Recession) accelerates, at the same time, P&L Credit Risk generally falls.
How about the Global Industrial, Manufacturing, and Profit Recession bottoming, and heading to #Quad2?
A) One of our biggest pivots alongside Long Copper (CPER) = Long China (FXI)
B) Energy (XLE) and Basic Material (XLB) stocks led last week at +3.8% and +1.6%, respectively
C) We have plenty EM and Cyclical Country Longs: recently added EWM, KEMX, EWY, KSA
Does that mean that everything is going to go moon from here? A: no. How do I know that? A: it didn’t last week!
But there’s certainly a lot to unpack here. If Powell panders to the Old Wall at Wednesday’s FOMC meeting (i.e. cooing dovishly), like I said, we’re only going to get paid faster being long of #Quad2 Inflation.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.25-4.48% (bullish)
UST 10yr Yield 4.09-4.35% (bullish)
UST 2yr Yield 4.48-4.75% (bullish)
High Yield (HYG) 76.88-77.63 (bullish)
Investment Grade (LQD) 107.43-109.46 (bullish)
SPX 5070-5195 (bullish)
NASDAQ 15,865-16,326 (bullish)
RUT 2025-2081 (bearish)
Tech (XLK) 203-212 (bullish)
Insurance (IAK) 110.99-115.53 (bullish)
Shanghai Comp 3020-3099 (bullish)
Nikkei 38,160-40,405 (bullish)
BSE Sensex (India) 72,356-74,251 (bullish)
DAX 17,650-18,071 (bullish)
VIX 13.51-15.34 (neutral)
USD 102.45-103.57 (bearish)
EUR/USD 1.082-1.098 (bullish)
USD/YEN 146.64-150.30 (neutral)
GBP/USD 1.269-1.287 (bullish)
CAD/USD 0.736-0.743 (bearish)
Oil (WTI) 78.02-82.44 (bullish)
Oil (Brent) 82.46-86.83 (bullish)
Copper 3.89-4.14 (bullish)
MSFT 404-426 (bullish)
AAPL 166-176 (bearish)
TSLA 157-185 (bearish)
NVDA 835-940 (bullish)
Bitcoin 65,009-74,535 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
