Holy Economic Data!

“Economics is a science of fashions.”
-Benoit Mandelbrot 

Indeed, The Brot had that right. Indeed. And while every mainstream political pundit and their brother has been obsessed with how to spin the current state of US Tax Reform, the US Economic Data continues to #accelerate!

I missed writing the Early Look as I was coaching in a hockey tournament up in Rochester this weekend, but I didn’t miss either the #accelerating US Retail Sales and Industrial Production data or the freshly squeezed all-time highs in the US stock market on Friday.

US Retail Sales for NOV came in at a scorching pace of +5.8% year-over-year (fastest in over 5 years) and the +3.4% year-over-year growth rate in US Industrial Production was a 36-month high. Being data instead of politically dependent has never mattered more.

 

Back to the Global Macro Grind…

It’s Macro Monday! For those of you who are new to our Global Macro Research #process, Mondays are the days where we contextualize the prior week’s macro market moves within intermediate-term @Hedgeye TRENDs.

Let’s start with the best tasting stuff that dip-buyers in the latest “tech correction” profited from last week:

1. Nasdaq led major US Equity Indices closing up +1.4% last week to +28.9% YTD = Bullish TREND @Hedgeye
2. Tech Stocks (XLK) led Sector Style gainers, up another +1.5% last week to +33.5% YTD = Bullish TREND @Hedgeye
3. SP500 tacked on another +0.9% last week to close at yet another all-time high at +19.5% YTD = Bullish TREND @Hedgeye

Sadly, instead of buying that damn-early-December-dip, consensus sold the DEC lows. If you didn’t catch that, here’s how market positioning looks from a non-commercial CFTC futures & options perspective:

A) SP500 (Index + Emini) net LONG position dropped -89,728 contracts earlier in the week to +87,521 contracts
B) Nasdaq (mini) net LONG position remained right where it’s been for the last 2 weeks at only +8,263 contracts

In context, that means the SP500 and Nasdaq net LONG positions are -0.08x and -1.87x on a 1-year z-score basis. Put simply, relative to where they’ve been (and what the market has been doing), consensus hasn’t been anywhere near Bullish Enough.

What consensus is really long now (AFTER the +19% ramp in 3 months of course) is Crude Oil. With a net LONG position of +637,977, contracts oil registers a +2.05x on a 1yr z-score and its equity cousins had a bad week alongside Utilities last week:

1. Energy Stocks (XLE) were down -0.8% on the week to -8.8% YTD = Neutral TREND @Hedgeye
2. Utilities (XLU) led Sector Style losers down -1.5% on the week at +13.3% YTD = Neutral TREND @Hedgeye

When it’s glaringly obvious that real US growth has been #accelerating like it has (for going on 6 quarters now), there’s no need to be long NEUTRAL and/or BEARISH TRENDs @Hedgeye. Fortuitously, we’ve stayed long the good stuff!

One major part of the Global Equity world that has not been good for the last 3-6 months (absolute or relative to being long US Growth) has been European Equities. In sharp contrast to USA, here’s how they did last week:

1. EuroStoxx 600 down -0.3% last week to +7.4% YTD = Neutral TREND @Hedgeye
2. Italy’s MIB Index led losers, down -3.0% last week to +14.9% YTD = Neutral TREND @Hedgeye
3. Spain’s IBEX was down another -1.7% last week to +8.5% YTD = Bearish TREND @Hedgeye

As you know, European Bond Yields have diverged materially vs. US yields (especially in the last 3 months) and we think that both stocks and bonds are leading indicators for the relative and absolute performance of the US vs. European economy in Q4 and 2018.

Another exposure that we’ve been getting out of as it rotates back to Bearish TREND @Hedgeye is REFLATION. Here’s how Reflation’s Rollover looked last week from a Commodities market perspective:

1. CRB Commodities Index down -0.3% on the week to -4.1% YTD = Bearish TREND @Hedgeye
2. Oil (WTI) was down -0.1% on the week to +0.5% YTD = Bullish TREND @Hedgeye
3. Natural Gas was down another -5.8% last week taking its 2017 crash to -30.9% YTD = Bearish TREND @Hedgeye
4. Copper reflated +5.2% last week to +24.1% YTD = Bearish TREND @Hedgeye
5. Corn deflated another -1.5% last week to -10.7% YTD = Bearish TREND @Hedgeye
6. Coffee deflated another -1.5% last week to -19.3% YTD = Bearish TREND @Hedgeye
7. Sugar deflated another -2.8% last week taking its 2017 crash to -26.5% YTD = Bearish TREND @Hedgeye
8. Orange juice deflated another -5.7% last week taking it back into crash mode at -22.4% YTD = Bearish TREND @Hedgeye

All of this crashing and deflating is awesome for those of us who consume those things. If we get follow through on Reflation’s Rollover, that’s even better for REAL US GDP Growth.

We currently have q/q US GDP going for its 3^rd straight quarter of a 3% handle (our predictive tracking algo ticked up to +3.07% on Friday’s Industrial Production report). Holy US Economic Data driven stock market, indeed!

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

UST 10yr Yield 2.33-2.42% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
Nikkei 222 (bullish)
DAX 125 (bullish)
VIX 8.83-10.56 (bearish)
Oil (WTI) 55.96-58.32 (bullish)
Nat Gas 2.55-2.90 (bearish) 

Best of luck out there today,
KM 

Keith R. McCullough
Chief Executive Officer