“Once you climb to another level, you have to figure out how to sustain it.”
-Mary J. Blige
That’s one way to think about why you’re hearing about this record 8th straight quarter of year-over-year #acceleration in US GDP Growth being “sustainable.” For the likes of Steve Mnuchin and Larry Kudlow, there’s job security to think about!
At one point yesterday, Mnuchin said that “we can only predict out a couple of years.” Really Steve? I would absolutely love to audit your predictive tracking algorithms to hold you to account on that.
After having had a US GDP forecast above Wall Street’s going all the way back to the 2H of 2016, we’re now below consensus for the next 2 quarters at +2.44% and +1.10%, respectively. If we’re right, Q2’s #PeakCycle GDP report will appear unsustainable.
Back to the Global Macro Grind…
Enough about that. It’s Macro Monday! So let’s get right back to measuring and mapping both the economic data and market moves within the context of our multi-duration @Hedgeye TRADE, TREND, TAIL model.
Let’s start with the FX market:
- US Dollar Index had another up +0.2% week taking its gain to +2.8% YTD = Bullish TREND @Hedgeye
- EUR/USD fell another -0.6% last week taking its loss to -2.9% YTD = Bearish TREND @Hedgeye
- Pound (vs. USD) fell another -0.2% last week taking its loss to -3.0% YTD = Bearish TREND @Hedgeye
- Turkish Lira (vs. USD) dropped another -1.3% last week taking its crash to -21.7% YTD = Bearish TREND @Hedgeye
- Brazilian Real (vs. USD) bounced +1.6% last week to -10.8% YTD = Bearish TREND @Hedgeye
- Argentine Peso (vs. USD) bounced +1.1% last week to -31.8% YTD = Bearish TREND @Hedgeye
So I’ll simply reiterate our top FX call = #StrongDollar. There are plenty of FX, Equity, and Credit opportunities out there on the short side; especially in EM (Emerging Markets).
In the Global Equity market, there were plenty of counter @Hedgeye TREND bounces to capitalize on:
- EM Equity (MSCI Index) bounced +2.1% to down -5.7% YTD = Bearish TREND @Hedgeye
- Chinese Stocks (Shanghai) bounced +1.6% to down -13.1% YTD = Bearish TREND @Hedgeye
- German Stocks (DAX) bounced +2.4% to down -0.4% YTD = Bearish TREND @Hedgeye
In contrast, the US Growth Sector Style Factor had one of its worst weeks (both relative and absolute) of 2018:
- NASDAQ corrected -1.1% last week to +12.1% YTD = Bullish TREND @Hedgeye
- US Tech Stocks (XLK) dropped -1.1% last week to +12.4% YTD = Bullish TREND @Hedgeye
- US Consumer Discretionary (XLY) corrected -0.5% last week to +13.1% YTD = Bullish TREND @Hedgeye
I don’t see this reversal in big cap US growth as a coincidence given that:
- US GDP Growth’s two-year #acceleration was being priced in for… 2 years! And …
- Facebook (FB) and Amazon (AMZN) both guided to #slowing revenue growth
That made being long Utilities (XLU), which were +0.7% on the week to almost break-even now for 2018 YTD, a wildly exciting position relative to where I could have been holding the bag!
Utes (XLU) were actually up (relative and absolute to Tech) despite the UST 10yr Yield rising +6 basis points last week to 2.95%. Mr. Market is sending us a message of lower-highs (for bond yields) during the cycle high prints for both US growth and inflation.
We’ll see how the Fed characterizes the US Cycle later this week but my baseline expectation is for Powell to remain hawkish as that’s what the rear-view looking data is – not Mnuchin +4-5% GDP hawkish, but hawkish as the Fed always is late in the cycle.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.81-3.01% (bearish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Utilities (XLU) 51.77—52.98 (bullish)
DAX 129 (bearish)
VIX 11.80-14.42 (bearish)
USD 93.80-95.21 (bullish)
EUR/USD 1.15-1.17 (bearish)
YEN 110.19-113.50 (bearish)
GBP/USD 1.29-1.32 (bearish)
Oil (WTI) 67.11-69.96 (bullish)
Gold 1 (bearish)
Copper 2.68-2.86 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
