“Without data you’re just another person with an opinion.”
-W. Edwards Deming
Well, I was asked to do Macro Monday. I did it my way. It is long, so I’ll keep this top part simple.
Data > narratives.
Back to the Global Macro Grind…
Welcome to a Macro Monday @ Hedgeye. A little different this time, as I am the one writing it. But I promise the amount of data you will receive will be the same. Let’s get it.
On Friday every major sector was down on increasing volume. Which was the first large down day since April 4th, when a Fed Head talked about the possibilities of no rate cuts. But first let’s talk about what Currencies did last week.
- Our Bullish Dollar View outperformed (+1.67% WoW and +3.5% in 3M) every major currency except for: Thai Baht, Sri Lankan Rupee, and Pakistani Rupee. I would say that’s a pretty good asset allocation.
Even with this move in the Thai Baht, we still remain short of Thailand via THD.
- The currency pairs down the most vs the USD last week were the Hungarian Forint (-2.85%), Swedish Krone (-2.37%), Colombian Peso (-2.33%), Chilean Peso (-2.33%), Polish Zloty (-1.81%), and the Brazilian Real (-1.8%).
I’ll allow everyone else to try to rationalize and come up with “why” South America and Eastern Europe are on this list together. I’ll be honest; it is way too early for me to rationalize anything. It is what it is; we are positioned for long Dollar.
Looking at the major indexes, the worst places WoW were Financials (-3.63%), Materials (-3.07%), Real Estate (-2.66%), Industrials (-2.2%), Energy (-1.99%).
This is in comparison with your best places over the trend duration (3 Months): Energy (+16.3%), Industrials (+9.6%), Materials (+7.8%), and Technology (+6.9%).
Energy, Materials, and Industrials have been straight up since Feb. 14th, and for the first week since then, are down. Should we panic or buy more of what we have been long since Feb. 6 Alarian MLP AMLP.
But those are the level 1 indexes, what I think about as the frame to the car (and also kind of boring). To really understand what is going on let’s look at what is happening in our 2,776 ETF database. When a car starts smoking, do you just stare at the frame or open it up and look at the engine?
Your top weekly ETF performers were: European Carbon KEUA (+9.95%), Dry Bulk Shipping BDRY (+9.27%), Carbon Offsets KRBN (+7.18%), California Carbon KCCA (+4.36%), Tanker Shipping BWET (+4.2%), Interest Rate Hedge PFIX (+4.05%), Agriculture DBA (+2.2%), Battery Metal ZSB (+2%), Dollar UUP (+1.9%), Gasoline UGA (+1.6%), Commodity Strat ZSC (+1.36%), and Base Metals DBB (+1.35%)
If you want to know how crazy markets are, all headlines last week were about Iran and Israel and expectations for escalation. So, people bid up shipping. But if a large war happens, Carbon Offsets will crash. Look at KRBN when Russia invaded Ukraine (it was down ~50%) - so having these two up shows that their narratives are bullshit.
Now, I hate noise, and the Carbon market is one of the nosiest because it’s basically people just listening to politicians. I have better things to do than to listen to liars. But if you must, the least noisy of that market is California KCCA (because it's easy to know what their policy is going to be, it doesn’t change). If you must know “why” carbon is up, Switzerland had a climate ruling last week so everyone is pro save the world again (yet let’s escalate a war LOL). Round of applause for your leaders everyone, case and point on how politicians lie to your face. Moving on…
I don’t have great data on Tanker Shipping BWET, but for Dry Bulk Shipping BDRY, we use shipping rates from Shanghai. These rates have been down since Feb. 20, and with the most recent headlines, they didn’t move at all—they stayed pretty flat.
Interest Rate Hedge PFIX: This ETF will go up when rates go up on the long end. So the way to play this one, is if you see the UST 30yr yield at the low end of the range and expect rates to go higher. You can then buy this, although rates are not at the low end right now so just keep this in your holster for now.
The dollar even being included in this list is very rare, and only happens when the market is having a panic attack. I will contextualize volatility below so that you can be even tempo.
Lastly, what we are long also made the list. COMMODITIES. We have been long Gasoline UGA since 2/20 and remain long Gasoline. The best places to be long this past month is all about commodities. We love markets with little noise, think. Base effects for CPI are easing so even if Powell decides to keep rates flat commodities will accelerate. If Powell decides to cut rates, they will go up even more and faster. If we continue to promote escalation in another war, they will go up even more. So what do you do? Wait for commodities to be at the low end of the range, and don’t go chasing up here (just like you don’t go chasing waterfalls).
Best commodity ETFs on a 1 month basis: Silver SLVP, Gold Miners GDMN, Gold/Metal Miner GOAU, Junior Uranium Miners URNJ, Copper Miners COPX, Precious Metals DBP, Rare Earth CRIT, Metals XME, Gold GLD, Green Metals GMET, Energy Transition RENW, Brent Oil BNO, Nuclear NLR, Nat Gas Trust FCG, and US Oil USO.
Some more honorable mentions where you will have zero noise: Nickel miners NIKL, Aluminum ALUM, Rare Earth Metals REMX, and Palladium PALL
You may be like, that’s cool, but what about US Equities. Let’s “real talk” the last 1 month:
- Silver SLVP is up +22.59%, the first traditional US Equity ETF is ranked 62. Meaning you can be long 61 other things and outperform your friends. That ETF is FAANG 2.0 (+6.5%)
- There is no 2, but SPY is ranked 643 with a 0.2% return
The worst performing ETFs on a 3 Month basis: Natural Gas UNG, Korean Entertainment KPOP, Clean Energy PBW, China Healthcare KURE, Telecom XTL, Genomics ARKG, Space UFO, Small Cap Consumer Staples PSCC, Interest Rate Vol IVOL, Real Estate Income RINC. If you are looking for trending shorts… there you go.
Alright, let’s get to the worst performing ETFs on the week. Ethereum Strategy EETH, Cannabis WEED, Bitcoin BTF, Psychedelics PSIL, Korean Entertainment KPOP, Israel EIS, Brazil Small Cap EWZS, Poland EPOL, Hydrogen HYDR, Clean Energy PBW, Blockchain BLOK, South Korea EWY, Regional Bank KBWR, Insurance KIE, Gaming BJK, Sugar CANE, Small Cap Consumer Discretionary PSCD.
My least favorite part: explaining our current positioning. Not because it is hard but because just looking at the ETFs tells you everything you need to know. But here you go.
- If Powell actually cared about inflation, he would be raising rates. All this talk about cutting rates is just increasing inflation quicker, as well as increasing rates. Making higher inflation and higher rates a trending move. But the thing is, he doesn’t care, and cares more about getting paid. So, market expectations for a rate cut in July are at 56%, and a rate cut by September is 100%. Expectations are also 1.7 rate cuts by the end of the year. We will see what Powell does at the next meeting. But for now, we can just profit from inflation going up no matter what he decides to do.
- The market is very scared about impending escalation in the Middle East. Shanghai Shipping rates were flat and Israel CDS did tick up late Friday. Mixed signals. Just like in your dating life, you don’t bet on the person giving you mixed signals. Since we can’t control what they do next because you and I will be the last to know what they do until they do it. Let’s look at what we can control, finding inflation plays.
That was all that happened last week. Let’s get into today’s plays.
Starting with Tier 1 data: Vol structure for today’s vol is at 22, Friday’s vol at 19.75, and next week vol at 19.09. 22 is very high, as is 19. At a very slow pace vol is coming down. Setting up this week to be volatile along with negative dealer gamma. This Vol curve does change daily. Opex for SPX is April 19. The Volatility skew bottoms at 5,300, but with the top end of the range being 5,253 (Frida) printing 5,300 seems unlikely. Although, the other major strikes in play are: 5,200 and 5,250.
Bitcoin’s weekly OPEX is April 19. It has $1bn in notional which is average for Bitcoin (monthly opex is 4/26 with $5.6bn in notional). Looking at 4/19 the volatility skew is from 67,500 – 71,000. The large Call strikes are 68k, 70k, and 80k. With a large amount of puts at 60k. The top end of the range is 72k (Friday), making the 80k strike unlikely. The low end is 67k (Friday), making the 60k puts unlikely. We will have to see what today’s risk ranges are, as the weekend was very volatile. Lastly, you have the Bitcoin halving on April 19.
There weren’t any large global data points today. My big callouts will be from last week.
- China exports and imports decelerated faster than expectations suggested. Although on the export front, base effects ease into July with the next month being the last tougher comp.
- China CPI and PPI also decelerated
- Taiwan Exports (the first of APAC for March) accelerated which is a decent sign for the rest of APAC. More notably was that exports to the US hit an all time high which shows demand in the semiconductor space is still high
What you are waking up to:
- Even with the missel strikes from Iran, US Futures are up. Exhibit 15 within this Early Look of why following news headlines provides zero alpha.
- Europe is up being led by Germany
- China is up +2.5%
- Israel is up +0.93%
- Crude oil is down -1.17%, let’s see if we hit the low end of the range. We prefer Gasoline UGA
- Silver continues higher +1.4%, Copper is up. Platinum is down -1.25%
- For those that care about ALUM and NIKL. Aluminum is up +2.13% this morning and Nickel is up +1.25% vs Palladium -1.56%
- Wheat, Soybeans and Corn are all down as the soft continue to underperform the rest of commodities
- Crypto is up across the board with Solana leading the pack +14% after a large down weekend. With the Bitcoin halving, this week will be newsy. Play those risk ranges and I’ll continue to update you on the options so we can cut through that noise
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.26-4.61% (bullish)
UST 2yr Yield 4.62-5.00% (bullish)
High Yield (HYG) 76.09-77.20 (neutral)
Investment Grade (LQD) 105.51-107.30 (bearish)
SPX 5103-5249 (bullish)
NASDAQ 16,007-16,442 (bullish)
RUT 1 (bearish)
Tech (XLK) 202-209 (bullish)
Insurance (IAK) 109.66-118.63 (bullish)
S&P Momentum (SPMO) 78.56-80.93 (bullish)
Healthcare (PINK) 29.21-30.81 (bullish)
Shanghai Comp 2 (bullish)
Nikkei 39,104-39,996 (bullish)
BSE Sensex (India) 73,303-75,032 (bullish)
DAX 17,838-18,511 (bullish)
VIX 13.51-17.74 (bullish)
USD 104.19-106.30 (bullish)
Oil (WTI) 83.95-87.46 (bullish)
Nat Gas 1.70-1.99 (bearish)
Gold 2 (bullish)
Copper 4.08-4.41 (bullish)
Silver (SLV) 26.03-29.28 (bullish)
Bitcoin 63,504-71,601 (bullish)
Best of luck out there,
Ryan Ricci
