“I am a tariff man, standing on a tariff platform.”
-William McKinley

He wasn’t kidding. William McKinley was the President of The United States from 1897 until his assassination in 1901. He was the last US President to serve in the American Civil War. He was tariff man, indeed.

My job isn’t to opine on whether or not I like tariffs or Trump. It’s to refresh my independent and apolitical research process for both incoming data and market signals at the top of every risk management morning.

If you want a Macro Tourist and/or political pundit to tell you that the incoming Chinese and/or European data #slowing (i.e. pre #TariffTrade news) is all about Trump, you can find plenty to suit that narrative. Mine’s been data-driven for months now.

Tariff Tourists - ztrump

Back to the Global Macro Grind…

It’s Macro Monday, baby! Let’s get after it and analyze what happened in Global Macro markets last week within the context of intermediate-term @Hedgeye TRENDS. I’ll focus on some shorter-term 1-month price momentum factors this morning as well.

First, here’s what happened in FICC (Fixed Income, Currencies, Commodities) last week:

  1. US Dollar Index was up for the 2nd week in a row (+0.8% in the last month) and remains Bearish TREND @Hedgeye
  2. EUR/USD was +0.2% on the week and remains Bullish TREND @Hedgeye
  3. Yen (vs. USD) was up another +1.1% on the week (still Bullish TREND and the Nikkei is Bearish TREND as a result)
  4. British Pound corrected -1.2% on the week but remains Bullish TREND @Hedgeye
  5. Commodities (CRB) Index corrected another -1.0% to 0.1% YTD but remains Bullish TREND @Hedgeye
  6. Oil (WTI) deflated by -3.6% on the week but remains Bullish TREND @Hedgeye
  7. Copper continued to break down, dropping -3.4% on the week and is back to Bearish TREND @Hedgeye
  8. Corn broke-out to Bullish TREND @Hedgeye with a +2.9% weekly gain
  9. Wheat ripped +7.7% higher on the week, moving to Bullish TREND @Hedgeye as well
  10. Lean Hogs were down another -5.3% on the week to -10.7% YTD and remain Bearish TREND @Hedgeye
  11. Sugar lost another -0.3% last week taking its YTD decline to -10.7% and remains Bearish TREND @Hedgeye
  12. Gold was down -0.5% on USD up week-over-week but remains Bullish TREND @Hedgeye
  13. UST 2yr Yield was flat on the week at 2.24% and remains Bullish TREND @Hedgeye
  14. UST 10yr Yield was down a basis point last week to 2.86% but remains Bullish TREND @Hedgeye
  15. US Junk Bond Yields dropped -12 basis points last week to 5.88% and they remain Bearish TREND @Hedgeye

That’s right - no matter who your President or Prime Minister (or hung Italian Parliament) is, when a bond yield is TRENDING Bullish @Hedgeye, we are under-weight those bonds and vice versa when the yield is Bearish.

While I still think that Reflation’s Rollover II will become the Macro Tourist type news for at least the next month and the UST 10yr Yield should continue to correct within its immediate-term @Hedgeye Risk Range like it has since US #InflationAccelerating peaked in FEB…

Since we have the USA in Quad 1 for Q118 (real growth accelerating as headline inflation slows, sequentially), I’m a buyer of High Yield bonds when yields tap the top-end of the @Hedgeye Risk Range and still under-weight long-term Treasuries vs. them.

Enough about that cross-asset class research – what did US and European stocks do last week?

  1. SP500 (after signaling lower-highs) corrected -2.0% last week to +0.7% YTD but remain Bullish TREND @Hedgeye
  2. NASDAQ out-performed (again) correcting only -1.1% last week to +5.1% YTD and remains Bullish TREND @Hedgeye
  3. Russell 2000 fell another -1.0% to a negative YTD return of -0.2% and remains Bearish TREND @Hedgeye
  4. EuroStoxx 600 dropped another -3.7% to -5.7% YTD and remains Bearish TREND @Hedgeye
  5. Germany’s DAX got tagged for a -4.6% decline taking it to -7.8% YTD and remains Bearish TREND @Hedgeye
  6. Swiss Stocks lost another -3.6% of their value taking them to -8.0% YTD and they remain Bearish TREND @Hedgeye

So, if you “bought European Stocks in Dollars” those returns have been even worse in the last 2 weeks… but I won’t go there because the only time I hear about the FX adjustment is when the Dollar is going down. 

In terms of US Equity Sector Styles:

  1. Industrials (XLI) took their book of relative under-performance, dropping -3.3% on the week to -0.7% YTD
  2. Technology (XLK) continued with their relative (and absolute) out-performance, down -0.9% on the week to +5.8% YTD

If you don’t like Old China or Europe slowing (or tariffs!) then don’t be overweight Global Industrials levered to any of that. I’m not. Keep it to US domestic consumption and/or un-levered innovation and I’m cool with that client pitch.

Looking at US Equity Style Factors, Mr. Market continues to be cool with US growth investing vs. levered-slow-growth too:

  1. HIGH DEBT (to EV) companies were down -2.6% last week to -3.2% YTD
  2. BOTTOM 25% SALES growers were down -2.2% last week to -2.9% YTD
  3. BOTTOM 25% EPS growers were down -2.3% last week to -3.4% YTD

*Mean performance of Top Quartile vs. Bottom Quartile (SP500 Companies)

I know, being long a levered small cap with slowing sales and/or EPS growth in the US isn’t as bad as being long European “value”, but seriously, that’s not saying much!  

For now, I’m a growth man, standing on a Quad 1 US Growth platform. Maybe the Tariff Tourists will like where we stand now too.

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

UST 10yr Yield 2.80-2.95% (bullish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7130-7419 (bullish)
Nikkei 21022-21894 (bearish)
DAX 114 (bearish)
VIX 15.20-22.95 (bullish)
USD 89.01-91.23 (neutral)
EUR/USD 1.21-1.24 (neutral)
YEN 105.50-107.92 (bullish)
GBP/USD 1.37-1.41 (bullish)
Oil (WTI) 59.90-64.16 (bullish)
Gold 1 (bullish)
Copper 3.08-3.19 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

Tariff Tourists - 03.05.18 EL Chart