“… but now I want to come back as the bond market.”
-James Carville 

That’s what Carville famously said in the early 1990s after saying that if he was reincarnated, “I used to think I wanted to come back as the President or the Pope or a .400 baseball hitter.” 

Dollar Up, US Growth Stocks at All-time Highs, Commodities Down, EM Down, Rates Down – and, contra to consensus positioning, the US bond market is signaling lower-highs in 10yr Yield terms yet again this morning. 

How many of you are starting to get long bonds and their proxies? I’m certainly not long Treasuries yet (I’m not shorting them anymore either!). But I did step up and buy last week’s correction in REITS via the VNQ. 

Back to the Global Macro Grind…

Strong Dollar, Reiterated - 06.15.2018 USD eagle cartoon

Happy belated Dad’s Day to all the fathers out there on this fine Macro Monday. For those of you who are new to our #process, on Mondays we review week-over-week moves within the context of @Hedgeye intermediate-term TRENDs. 

Last week was a “Strong Dollar, Reiterated” week by Mr. Market – here’s how that looked: 

  1. US Dollar Index up another +1.3% last week to +2.9% YTD = Bullish TREND @Hedgeye
  2. EUR/USD down another -1.4% last week to -3.3% YTD = Bearish TREND @Hedgeye
  3. Pound (vs. USD) corrected another -0.9% last week to -1.7% YTD = Bearish TREND @Hedgeye
  4. Canadian Dollar (vs. USD) dropped a full -2% last week to -4.7% YTD = Bearish TREND @Hedgeye
  5. Mexican Peso (vs. USD) also lost -2% of its value last week to -5.0% YTD = Bearish TREND @Hedgeye
  6. Turkish Lira (vs. USD) got slammed for another -5.6% loss last week to -19.5% YTD = Bearish TREND @Hedgeye
  7. Argentine Peso (vs. USD) continued to crash by another -10.4% last week to -34.1% YTD = Bearish TREND @Hedgeye 

Nope. Neither Argentina 1 vs. Iceland 1 (World Cup) nor Argentina’s currency down -34% are typos. Iceland had an epic week – its stock market was +3.0% to +5.4% YTD as some Emerging Market (EM) countries saw their equity markets implode: 

  1. EM (MSCI Index) was down -0.9% last week to -2.8% YTD = Bearish TREND @Hedgeye
  2. Brazilian Stocks dropped another -3.6% last week to -8.0% YTD = Bearish TREND @Hedgeye
  3. Philippine Stocks fell another -2.7% last week to -12.0% YTD = Bearish TREND @Hedgeye 

Whereas US Stock market exposures we still like most continued to out-perform on both a relative and absolute basis: 

  1. NASDAQ was up another +1.3% on the week to +12.2% YTD = Bullish TREND @Hedgeye
  2. Russell 2000 added another +0.7% to +9.7% YTD = Bullish TREND @Hedgeye
  3. Consumer Discretionary (XLY) stocks tacked on another +2.0% last week to +13.6% YTD = Bullish TREND @Hedgeye 

One Sector Style we still like that got pounded last week is Energy Stocks (XLE). They led US Equity Sector losers correcting -3.6% last week to +2.6% YTD as Oil continued to correct alongside the Commodities complex in general: 

  1. CRB Commodities Index corrected another -1.9% last week to +1.2% YTD and is teetering on a TREND break-down
  2. Oil (WTI) was down -1.7% last week to +8.2% YTD and is also debating a bearish TREND break-down as a result
  3. Copper turn-tailed @Hedgeye TREND resistance, dropping -5.1% on the week to -5.9% YTD
  4. Corn continued to break-down, losing another -3.8% last week to -0.3% YTD = Bearish TREND @Hedgeye
  5. Soybeans stuck with its new Bearish TREND setup, falling another -6.0% last week to -4.6% YTD
  6. Rubber got smoked for another -6.2% loss last week to -25.3% YTD = Bearish TREND @Hedgeye 

Yep. If you’ve been long Rubber, Brazil, and some cool Crypto, you may have had a worse week than the Argentines did. Ex Peso Bulls, at least Argentina can still hope for Messi’s best against Croatia! 

Being long Brazilian Real and the Bovespa isn’t the only problem going on there right now (add tying Switzerland 1-1 to the list). I wonder if Carville would come back as the Brazilian Bond Market

Unlike the Italian 10yr Yield which pulled back -52 basis points last week, Brazil’s 10yr was UP another +67 basis points to +12.31%. That puts the Brazilian 10yr Yield +206 basis points for 2018 YTD and decisively Bullish TREND @Hedgeye. 

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

UST 10yr Yield 2.87-2.99% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Energy (XLE) 73.97-77.38 (bullish)
REITS (VNQ) 78.33-80.09 (bullish)
VIX 11.37-15.07 (bearish)
USD 93.40-94.75 (bullish)
EUR/USD 1.15-1.17 (bearish)
GBP/USD 1.32-1.34 (bearish)
Oil (WTI) 64.05-67.41 (bullish)
Nat Gas 2.90-3.06 (bullish)
Copper 3.10-3.32 (bearish)
Corn 3.58-3.85 (bearish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

Strong Dollar, Reiterated - 06.18.18 EL Chart