“I didn’t hear him because my two Stanley Cup rings were plugging my ears.”
-Patrick Roy
For those of you Americans who don’t watch le hockey (we’re still working at converting all subscribers into fans), Patrick Roy is de French Canadian goalie who played for les Canadiens de Montreal and le Avalanche de Colorado, eh.
Roy had his two Stanley Cups and now my favorite active pro hockey player, Sydney Crosby, has three. Before his team won any of them, the young Captain would always say “individual honors are great, but my number 1 goal is to win The Cup.”
As we all get back to work this morning, I think it’s a good time to remind ourselves how much more we can achieve when we work as a team rather than as individuals. Good players win awards – great teams win championships.
Back to the Global Macro Grind…
Heard in the losing team’s locker room: “tech is getting wrecked, bro – this market is toast.” Yep, after a 4-hour selloff, that’s it “folks.” The entire championship run Tech is on vs. the “reflation trade” is over. Dead. Done. Caput, eh.
In other news, the Russell 2000 closed at a fresh all-time high of 1421 on Friday.
In light of Friday’s intraday price momentum tantrums (actually it’s just our predictive tracking algo updating for recent data), we’re going to take our Q2 US GDP forecast up to +2.35% year-over-year growth which imputes +2.66% q/q GDP SAAR.
If you don’t know what SAAR (seasonally adjusted annualized rate) means, don’t sweat it. To get your asset allocation right, you need to get the trending year-over-year rates of change in both growth and inflation right.
As a reminder, our big macro calls on those fronts are still:
- US #GrowthAccelerating from +2.0% year-over-year in Q1 to +2.35% in Q2 and +2.5-2.8% in Q3 and Q4
- Reflation’s Rollover (worldwide) with a projected drop in US headline inflation (CPI) to +1.34% by Q417
So, if you have active-manager friends who have missed out on the +2,800 basis points of relative performance in being long US Tech (XLK) which is still +16% YTD vs. Reflation (via Energy’s XLE which is down -12% YTD), there’s still time on the clock.
With time and space comes what we call market corrections. Last week was what we call a counter-TREND move in real growth vs. reflation. Those dips in real growth are to be bought inasmuch as bounces in reflation are to be sold.
To contextualize last week’s US Equity TRADE within the intermediate-term TREND, here’s how the macro score looked:
- SP500 -0.3% on the week to +8.6% YTD
- Dow Bro +0.3% on the week to +7.6% YTD
- Nasdaq -1.6% on the week to +15.3% YTD
- Russell 2000 +1.2% on the week to +4.8% YTD
- Tech (XLK) -2.0% on the week to +15.8% YTD
- Consumer Discretionary (XLY) -2.0% on the week to +11.0% YTD
- Financials (XLF) +3.6% on the week to +4.5% YTD
- Energy (XLE) +2.0% on the week to -11.8% YTD
In other words, the YTD winners (real growth) corrected whereas the YTD losers (reflation) bounced. If a weekly performance scoreboard were to look like this for the next 3-6 months, I am going to get killed.
In the meantime though, I am alive, kicking, and reiterating that the actual “reflation” component that matters kept getting killed last week. Check out these week-over-week moves:
- Commodities (19 component CRB Index) underperformed the SP500 (again) -0.7% on the week to -8.2% YTD
- Oil (WTI) got smoked for another -3.8% weekly loss, almost putting it in crash mode at -19.3% YTD
- Russian Stocks (RTSI) were down (again) another -0.4% to -9.6% YTD
If perma Oil bulls don’t like me cherry picking Russian weakness, it is Venezuelan strength I’ll give them. Stocks in Caracas closed up +18% last week to +191% YTD. If you want the real inflation, burn your currency at the stake like these donkeys did.
Another interesting (but not surprising within the context of our call for European growth and inflation to slow in 2H17) development last week was the emergence of bearish 1-month price momo in some major European Equity indices.
While Consensus Macro continues to be “fascinated” with the economic prospects for France (it still looks like France to me), the CAC40 was -0.8% last week to +9.0% YTD and, unlike the SP500 which is +1.7% in the last month, the CAC is down -2.5%.
While I’m not “short European Equities” yet, with our growth and inflation views for the south of Europe in particular, I am very interested in shorting European banks again. Euro rates falling as Draghi goes dovish would be the macro thought there.
Staying short The Euro still makes a lot of sense to me. If you have friends who are long of it, tell them to plug their ears, while I remind you that “Long Euro” is still the biggest consensus net LONG position in all of futures/options positioning.
Our immediate-term Global Macro Risk Ranges (and intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.12-2.29% (neutral)
SPX 2411-2447 (bullish)
RUT 1 (bullish)
NASDAQ 6168-6351 (bullish)
XOP 31.14-33.53 (bearish)
VIX 9.58-11.57 (bearish)
EUR/USD 1.10-1.13 (bearish)
Oil (WTI) 44.66-47.52 (bearish)
Nat Gas 2.86-3.13 (bearish)
Gold 1 (bullish)
AAPL 147.29-156.01 (bullish)
AMZN 970--1019 (bullish)
FB 148-155 (bullish)
GOOGL (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
