Love At First Flight

“It’s love at first flight.”
-Susie Meyers

While I am on the 1^st flight out of LaGuardia to Dallas, TX this morning (can’t wait to wear a suit all day in Texas in July!), the aforementioned quote has absolutely nothing to do with that. It’s all about ball flight.

That’s right. On the heels of an epic Jordan Spieth win at The Open this weekend, the quote comes from a great golf book I’ve been reading that simplifies the complex. It’s titled Golf From Point A.

As with many things in life, golf lessons teach us about markets. “Every shot (position) is as unique as the golfer who creates it… and you can only physically be where you are now, in the present.” Good #lessons to live by, indeed.

Back to the Global Macro Grind…

Last week’s flight to the 27^th record closing high of 2017 for the S&P 500 was a beauty. If you steadied your mind and bought the damn dip in US growth stocks 3 weeks ago, that is. Both Gold and Long-term Bonds had a good week too.

Looking at the scorecard, here’s what happened in the US last week:

1. SP500 +0.5% on the week to +10.4% YTD
2. Nasdaq +1.2% on the week to +18.7% YTD
3. Russell 2000 +0.5% on the week to +5.8% YTD
4. Tech Stocks (XLK) +1.1% on the week to +18.8% YTD
5. Consumer Discretionary Stocks (XLY) +1.0% on the week to +12.0% YTD
6. Utilities (XLU) +2.6% on the week to +9.7% YTD
7. Energy Stocks (XLE) -0.4% on the week to -13.6% YTD
8. US Dollar Index -1.4% on the week to -8.2% YTD
9. US 10yr Treasury Yield -9 basis points on the week to 2.24% (-21bps YTD)
10. US Equity Volatility (VIX) -2% to-33% YTD

Dollar Down, Bond Yields Down (on Reflation’s Rollover), and both Growth and “Yield” Stocks Up – almost everyone was a winner last week, ex-Energy-and-Europe.

That’s right. In sharp absolute (and relative) contrast to the Nasdaq and Russell (which are +2.4-2.6% in the last month alone), European Stocks continued to suck wind last week:

1. EuroStoxx 600 -1.7% on the week to +5.2% YTD
2. German Stocks (DAX) -3.1% on the week to +6.6% YTD
3. French Stocks (CAC) -2.2% on the week to +5.3% YTD

In other words, “cheap” European stocks got cheaper relative to their US growth counterparts…

Given the massive difference in pending long-term growth rates of their critical 35-54 year old populations, this makes nothing but sense to us.  As you can see in today’s Chart of The Day, rates of change in #Demographics always matters.

If we’re right, the best of both Southern European growth and inflation (in year-over-year rate of change terms) is in the rear-view mirror. As European growth and inflation slow cyclially, consensus is marking up the Euro too!

Rising Euro (to immediate-term TRADE overbought within our $1.13-1.17 @Hedgeye Risk Range), is not something that European Equity Bulls want to see inasmuch as Draghi doesn’t (give him a little more vaca and 2-3 months of this).

Oh, and the “it’s different this time in France” consensus just saw Macron’s popularity drop the most 2^nd most post a Presidential victory as any French President, ever. I still don’t think it’s different this time.

Consensus Positioning, however, continues to side with The Euro vs. both the Dollar and the Yen. As you can see in the latest non-commercial CFTC futures & options positioning:

1. Euro net LONG position up another +8,466 contracts last week to +93,799 contracts = +2.03x 1yr z-score
2. US Dollar net LONG position down -293 contracts last week to +2,010 contracts = -1.93x 1yr z-score
3. Yen net SHORT position -17,296 contracts last week to -131,370 contracts = -1.97x 1yr z-score

As a reminder, we look to fade Consensus Positioning (if we have forward looking fundamental research reasons to do so), when big macro positions are extended +/- 2.0x relative to themselves (z-scores).

While my Euro Fade shot hasn’t looked pretty yet off the tee, that is the shot I want to hit again this week. With both German Services and Manufacturing PMIs slowing this morning, economic headwinds in Europe are mounting.

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

UST 10yr Yield 2.21-2.31% (bearish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
DAX 12111-12499 (bearish)
VIX 9.02-10.96 (bearish)
USD 93.50-96.01 (neutral)
EUR/USD 1.13-1.17 (neutral)
YEN 110.30-114.01 (bearish)
Oil (WTI) 44.24-47.65 (bearish)
Gold 1 (neutral)

Best of luck out there this week,
KM

Keith R. McCullough
Chief Executive Officer