Trade Truce Breakout?

“It came to pass that they were burnt in a stove in the House of Lords.”
-Charles Dickens 

Dickens was talking about English Exchequer Tallies. Most of what you saw at this weekend’s Royal Wedding was lovely. To central market planning and fiat currency fans, burning the old British “Tally Stick” system in the early 19^th century was too.

As Felix Martin explained in Money, “In 1834, the ancient institution of the Receipt of The Exchequer was finally done away with… and the last Exchequer tally replaced by a paper note.” (pg 19)

While I’ve never seen someone physically burn a Bitcoin, I’ve certainly seen all sorts of coins and plenty of EM currencies crash. All the while, the hated US Dollar appreciated in value again last week. Oh how some of my libertarian friends have been wronged!

Back to the Global Macro Grind…

Macro Mondays @Hedgeye aren’t for the self-righteous. They are for the rate of change #process people who don’t start with what things like FX and Commodities should do – they’re all for measuring and mapping what they are actually doing.

This morning’s “news” that the USA vs. China “Trade War” is on hold has the world’s equity markets wondering if that’s a good or a bad thing. We’ll simply remind you that whatever continues to be a good thing for the US Dollar is not a good thing for everything else.

Here’s how the US Dollar Index looked vs. competing currencies last week:

1. US Dollar Index up another +1.2% on the week to +1.7% YTD = Bullish TREND @Hedgeye
2. EUR/USD down another -1.4% to -1.9% YTD = Bearish TREND @Hedgeye
3. Yen/USD dropped another -1.2% to +1.7% YTD = Bearish TREND @Hedgeye
4. GBP/USD fell another -0.5% to -0.3% YTD = Bearish TREND @Hedgeye
5. Canadian Dollar down another -0.7% vs. USD to -2.4% YTD = Bearish TREND @Hedgeye
6. Argentine Peso remained in crash mode, -5.7% last week to -23.6% YTD = Bearish TREND @Hedgeye
7. Brazilian Real moved into crash mode, -3.6% last week to -11.4% YTD = Bearish TREND @Hedgeye
8. Turkish Lira remained in crash mode, -3.9% last week to -15.3% YTD = Bearish TREND @Hedgeye

That’s right. Currencies are moving into crash mode and the Old Wall and its media wants to focus on “trade war” tweets instead.

Given that “Long Emerging Markets” (including their currencies) was one of the most consensus long positions on Wall Street at the beginning of 2018, that doesn’t surprise me.

In sharp contrast to what being long US Domestic Equity exposure via the Russell 2000 (which was +1.2% to a fresh all-time closing high of +5.9% YTD) did for a Global Equity Portfolio last week, here’s how EM (Emerging Market) Equities did:

1. EM (MSCI Index) down -1.8% on the week to -1.2% YTD = Bearish TREND @Hedgeye
2. EM LATAM down -4.1% on the week to -2.6% YTD = Bearish TREND @Hedgeye
3. Mexican Stocks down another -2.3% last week to -7.5% YTD = Bearish TREND @Hedgeye
4. Polish Stocks down another -3.4% last week to -7.9% YTD = Bearish TREND @Hedgeye
5. Indonesian Stocks down another -0.7% overnight and down -9.4% in the last month alone (also Bearish TREND @Hedgeye)

“So”… whether it was Asian EM, European EM, or Latin American EM, it was mostly not good on both an absolute and relative basis to being long DM Equities (Developed Markets) like Germany, the UK, and Japan.

Not everything in Europe liked a devalued Euro though last week:

1. EuroStoxx 600 was up +0.6% on the week to +1.4% YTD and back to Bullish TREND @Hedgeye
2. Whereas, Italy and Greece saw their stock markets drop -2.9% and -4.8%, respectively, week-over-week

That’s mainly because Bond Yields in Europe blasted higher alongside US Treasury Yields last week:

1. UST 10yr Yield up another +9 basis points to +3.06%  = Bullish TREND @Hedgeye
2. Italy’s 10yr Yield popped +36 basis points to +2.23% and back to Bullish TREND @Hedgeye
3. Greece’s 10yr Yield ramped +52 basis points to +4.54% and back to Bullish TREND @Hedgeye

Bond Yields in both the USA and Europe breaking out as Global Currencies are breaking down? You sure you want to run out and buy everything this morning on the Macro Tourist “trade truce” breakout?

All the while the case for Global Stagflation continues to play out in the @Hedgeye TREND rate of change data:

1. Oil (WTI) inflated another +1.0% last week to +18.9% YTD = Bullish TREND @Hedgeye
2. Corn and Wheat rallied another +1.5% and +3.9% to +9.6% and +14.3%  YTD, respectively = Bullish TREND @Hedgeye
3. Lumber ripped another +3.5% last week to +48.3% YTD = Bullish TREND @Hedgeye

Alongside Down Bitcoin, Gold and Silver lost another -2.1% and -1.8% of their respective value last week. If you read the Gold Bug manifestos of those who allegedly know everything bad about fiat currencies like these EM ones, that’s not “supposed to happen.”

But, again, we’d like you to focus on what is happening vs. what some people say should always be happening.

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

UST 10yr Yield 2.97-3.14% (bullish)
SPX 2 (neutral)
RUT 1 (bullish)
NASDAQ 7173-7456 (bullish)
Energy (XLE) 74.59-79.48 (bullish)
REITS (RMZ) 1042-1078 (bearish)
VIX 12.20-16.38 (bullish)
USD 92.18-93.85 (bullish)
EUR/USD 1.17-1.19 (bearish)
YEN 109.10-111.51 (bearish)
GBP/USD 1.34-1.36 (bearish)
Oil (WTI) 69.04-72.53 (bullish)
Gold 1 (bearish)
Corn 3.94-4.09 (bullish)
Bitcoin 7 (bearish) 

Best of luck out there this week,
KM 

Keith R. McCullough
Chief Executive Officer