“I’ll live the focused life, because it’s the best kind there is.”
-Winifred Galagher
I realize choosing this profession isn’t for everyone, but I’m certainly grateful that I’ve had an opportunity to pursue it. For whatever it may be, having a focus and passion for something in life is what I want for my four children too.
The aforementioned quote comes from the conclusion of a great book I’ve been citing in recent months, Deep Work: Rules For Focused Success In A Distracted World, by Cal Newport. If you have time to read it this summer, I highly recommend it.
I like rules, especially if I can make my own! I love #process, especially if I can evolve it. Focus and discipline are things I learned at a young age, especially when competing against players and students who were more talented than I.
Back to the Global Macro Grind…
Welcome to the 1st Macro Monday of the summer! Thanks to all of our new subscribers for joining us this morning. Mondays are the days when we review the prior week’s moves in macro markets within the context of @Hedgeye TREND views.
And what a week it was…
When it was all said and done, US Growth was the big winner; especially vs. International Equity exposures:
- US Tech Stocks (XLK) were +1.9% last week to +11.2% YTD and a new ALL-TIME HIGH = Bullish TREND @Hedgeye
- Russell 2000 (IWM) was up another +1.3% last week to +7.3% YTD (all-time high) = Bullish TREND @Hedgeye
- US Energy Stocks (XLE) led gainers +2.4% last week to +5.7% YTD = Bullish TREND @Hedgeye
Vs.
- European Stocks (EuroStoxx600) were down -1.1% last week to -0.6% YTD = Bearish TREND @Hedgeye
- Emerging Market Stocks (MSCI) were down -1.4% last week to -3.3% YTD = Bearish TREND @Hedgeye
- Latin American Stocks (EM MSCI) were down -3.6% last week to -9.5% YTD = Bearish TREND @Hedgeye
And if you look at some of the biggest country level indices vs. USA, it obviously wasn’t good either:
- CHINA: Shanghai Comp dropped another -2.1% last week to -7.0% YTD = Bearish TREND @Hedgeye
- SPAIN: IBEX led major European losers, down -2.0% last week to -4.1% YTD = Bearish TREND @Hedgeye
- TURKEY: led EM Equity losers, down another -3.9% last week to -14.0% YTD = Bearish TREND @Hedgeye
Why? Three simple @Hedgeye Macro Themes of 2018 explain a lot of what the Wall Street Journal is finally running a headline story on this morning (“Global Economic Growth Story Fades”):
- #ChinaSlowing
- #EuropeSlowing
- #EMSlowing
And we have no reason to change these views today. Lower prices don’t make something turn into a Bullish TREND @Hedgeye. Higher-lows and breakouts to the upside born out of #accelerating rate of change data does.
As a reminder on the USA vs. International story, crashing foreign currencies remains as relevant as the #GlobalDivergences you’re seeing in Global Equity Returns – these have nothing to do with Italian politics:
- US Dollar Index -0.1% last week to +2.2% YTD
- Brazilian Real down another -3.0% last week to -12.0% YTD
- Argentine Peso down another -1.7% last week to -25.5% YTD
Evidently the Brazilian equity market has not enjoyed a double digit decline in its currency. It shouldn’t like its real GDP growth rate getting cut in half prior to the currency cracking either!
Pardon the pun, but another emerging market risk is that Oil A) stopped going up rather abruptly (WTI was -3.0% last week to +10.1% YTD) and B) is testing a break-down of @Hedgeye TREND support of $66.01/barrel (WTI).
Since Long US Energy (Oil and Natural Gas) via our US #InflationAccelerating theme remains a big reason why I still have Energy Stocks (XLE) in my Top 3 US Equity Sector Styles (alongside Consumer Discretionary and Tech – XLY and XLK)…
I need to be focused and respectful of Mr. Market’s signal here.
While I still have immediate-term upside in the UST 10yr Yield to 3.13% (from 2.91% this morning), there should be a point in time in the next 1-3 months where Mr. Market says he’s done pricing in higher inflation expectations.
Doing this for almost 20 years now, I’ve been humbled many times in my career by not having the discipline to listen to the market’s signal. As I grow grayer (and fatter), I hope my evolved process helps me make less of those mistakes.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.74-3.13% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Energy (XLE) 73.71-79.43 (bullish)
Industrials (XLI) 74.01-76.63 (bearish)
DAX 122 (neutral)
VIX 11.17-16.91 (bullish)
USD 93.06-94.91 (bullish)
EUR/USD 1.15-1.18 (bearish)
Oil (WTI) 64.25-74.01 (bullish)
Nat Gas 2.85-3.03 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
