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This Is the Currency War

Takeaway: In case you weren’t sure, this is the Currency War.

It was just a matter of time… another big league centrally planned market morning, worldwide #enjoy

This Is the Currency War - currency wars

 

The Eurocrats returned with a bang this morning. Forget the Italian (Mario Draghi) … They brought in the lefty French economist (Benoit Coeure) from L’Ecole Polytechnique and the Paris Club de creditors to devalue the Euro and “front-load QE” to this month and next.

 

In case you weren’t sure, this is the Currency War. And unless you have the timing of each incremental "easing" it's tough to risk manage. Meanwhile, the EUR/USD is right back down to the low-end of my $1.10-1.14 risk range on that. Correlation trades in motion (USD up, Commodities down)

 

Of course, omnipotent ECB central planners did not like the non-centrally-planned move in Euro Bond yields, hence the intervention this morning. The German 10yr yield is down to 0.61% on the news.

 

Not to be outdone by the Europeans, the Chinese were at it again overnight, “easing requirements for corporate bond issuance.” The Shanghai Composite Casino? It loved that, jumping over +3% to almost +37% YTD as growth there continues to slow and freak out the People's Bank of China (PBOC). 

 

As I wrote earlier today, “With both the European and Chinese economies now slowing, at the same time, there is only one play in their gravity-smoothing playbook for that: Must ease, faster.

 

More to be revealed.

*  *  *  *  *  *  *  

 

Editor's Note: This is an excerpt from Hedgeye morning research. Click here for more information on what we offer and how you can become a subscriber.


VIDEO | Darius Dale Walks Through The Hedgeye Macro Playbook

The Hedgeye Macro Playbook is a periodic, deep-dive update to our active Macro Themes and Thematic Investment Conclusions.

 

Watch Darius Dale walk through the latest updates below.

 

CLICK HERE to download the associated presentation in PDF format (25 slides).

 

CLICK HERE to download the latest refresh of our Tactical Asset Class Rotation Model (32 slides).

 

As always, feel free to ping us with any follow-up questions.

 

Enjoy the rest of your respective days,

 

DD

 

Darius Dale

Associate


Keith's Macro Notebook 5/19: Euro | 10YR | China

 

Hedgeye Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Big League Central Planning

Client Talking Points

EURO

Forget the Italian, they brought in the French economist (Coeure) to devalue the Euro and “front-load QE” to this month and next. The EUR/USD is right back down to the low-end of our $1.10-1.14 risk range on that; correlation trades in motion (USD up, Commodities down).

10YR YIELDS

The ECB didn’t like the non-centrally-planned move in Euro Bond yields – hence the intervention this morning. The German 10YR is down to 0.64% and the UK 10YR Gilt is down 6 basis points after printing its 1st #deflation in CPI since 1960. The UST 10Y is down -5 basis points on the global move. 

CHINA

Not to be outdone by the Europeans, the Chinese were at it again overnight “easing requirements for corporate bond issuance.” The Shanghai Composite Casino loved that, up +3.1% to +36.7% year-to-date as growth there continues to slow and freak out the PBOC.

Asset Allocation

CASH 53% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 7%
FIXED INCOME 26% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
VNQ

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.

ITB

The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54. Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  At  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.

TLT

The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road

TWEET OF THE DAY

THIS MORNING

9:00am ET

Hedgeye CEO @KeithMcCullough joins @MariaBartiromo @FoxBusiness @OpeningBellFBN

@Hedgeye

QUOTE OF THE DAY

An obstacle is often a stepping stone.

-William Prescott

STAT OF THE DAY

Consumer prices in the UK fell 0.1% year-over-year, marking a return to deflation for the first time in at least 55 years. 


CHART OF THE DAY: It's Back to Burning Euros And Buying Bonds!

Editor's Note: The chart and blurb below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for more information and to subscribe. 

 

CHART OF THE DAY: It's Back to Burning Euros And Buying Bonds! - z 05.19.15 chart

 

"...Instead of Draghi coming back from the beaches with a bazooka, he sent in the Frenchman. Who’s the French guy? As in The Lefty Economist, Benoit Coeure. This guy hails from L’Ecole Polytechnique and the Paris Club de creditors. He’s big time.

 

And a big time headline he provided, indeed!

 

“Ze ECB is going to front-load ze QE” -Coeure

 

That’s code for we’re going to get back to Burning Euros and buying bonds..."


Non-Idle Easing

“Trouble springs from idleness, and grievous toil from needless ease.”

-Benjamin Franklin

 

Not to be confused with Eurocrats who have recently returned from their monthly vaca, I’m pretty sure Ben Franklin was talking about lazy Americans who spend their time doing nothing.

 

They’re back! This morning’s macro market moves have nothing to do with central planners standing idle. Needless easing, you say? Who cares what we say? They say they need moarrr cowbell!

 

With both the European and Chinese economies now slowing, at the same time, there is only one play in their gravity-smoothing playbook for that. Must ease, faster.

 

Non-Idle Easing - Draghi cartoon 03.31.2015

 

Back to the Global Macro Grind

 

On The Macro Show yesterday (new daily video product we’re launching on Thursday) I kept asking my man Darius Dale, “where’s Draghi?” With both European stock and bond markets under pressure, I figured he’d re-appear…

 

I figured wrong…

 

Instead of Draghi coming back from the beaches with a bazooka, he sent in the Frenchman. Who’s the French guy? As in The Lefty Economist, Benoit Coeure. This guy hails from L’Ecole Polytechnique and the Paris Club de creditors. He’s big time.

 

And a big time headline he provided, indeed!

 

“Ze ECB is going to front-load ze QE” -Coeure

 

That’s code for we’re going to get back to Burning Euros and buying bonds, so you, little yield chasing man, better get out of your idle bed and start buying stocks, fast! Here’s what Global Macro markets did on that:

 

  1. Euro -1.1% (vs. USD) to $1.11 after tapping the top-end of our $1.10-1.14 risk range last week
  2. EuroStoxx50 +2.1% in a straight line off last week’s oversold lows
  3. German Stock market (DAX) +2%, leading gainers, after a -2.2% drop on Up Euro last week
  4. US Dollar up +1% (from 1-month lows)
  5. Commodities mostly down on the inverse correlation move to USD

 

Oh, and not to be confused with centrally planned markets, there was the actual European economic news:

 

  1. German ZEW sentiment for April fell to YTD lows of 41.9 vs. 53.3 last
  2. Eurozone inflation for April clocked in at 0.0% y/y; wow was that Policy To Inflate successful!
  3. UK CPI -0.1% year-over-year in April (PPI -1.7%) was the 1st deflationary report since 1960

 

That would be the year 1960, not some moving monkey level in the SP500.

 

Ah, wasn’t local life in America grand back then. That’s when the front-page of the NY Times would trumpet a young President by the name of John F. Kennedy and his #StrongDollar, Strong America message…

 

Newsflash: this is not the 1960s

 

This is a worldwide growth slow-down. It’s getting more volatile by the day, week, and month as central planners struggle with realizing the output of their currency devaluation policies to inflate – economic stagnation.

 

In other gravity-bending news, China’s slowdown continues and so does the “policy response” to “stimulate. The Shanghai Comp Casino ripped another +3.1% overnight to +36.7% YTD on “easing requirements for corporate bond issuance.”

 

You don’t have your 401k or clients in “China” as Chinese growth slows at a faster rate than its population is aging? What is wrong with you? Don’t stand idle. Get a Chinese broker and a margin account already. This is easy. Grievous toil be damned.

 

Our immediate-term Global Macro Risk Ranges (with intermediate term TREND views in brackets) are now:

 

UST 10yr Yield 1.96-2.32% (bearish)

SPX 2107-2139 (bullish)
RUT 1 (bullish)
Nikkei 196 (bullish)
VIX 11.97-15.44 (bullish)
USD 92.99-95.61 (neutral)
EUR/USD 1.10-1.15 (neutral)
YEN 118.81-120.78 (bearish)
Oil (WTI) 55.99-61.39 (bullish)

Natural Gas 2.78-3.10 (bullish)

Gold 1 (bullish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Non-Idle Easing - z 05.19.15 chart


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