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“As so often is the history of monetary thought, theory lagged behind practice.” -Felix Martin 

Oh the economic theories – there are many. Then there’s this thing called the market discounting what the future will look like. On that score, the history of monetary thoughts and policies is that central market planners operate on a lag to lagging economic data. 

The aforementioned quote comes from a thought provoking history of monetary policy called Money. Like most economic opinions, there’s plenty in it to debate. For me, it’s imperative to try to understand where the other side of my thoughts are coming from. 

My most general thought about the Global Economy is that is #slowing right now. Since the USA has joined the rate of change slow-down from its Q2 cycle peak, I can say that more broadly this morning than I could have as early as last week. 

Back to the Global Macro Grind… 

The Fed, of course, disagrees with my general view. As always, the US Federal Reserve is currently characterizing the US economy using what happened 3-6 months ago. What we do is now-cast what they’ll see 3-12 months from now. 

Global #GrowthSlowing - Fed cartoon 10.27.2015

In yesterday’s predictably hawkish FOMC statement, Jerome Powell’s Fed changed some words from the economy is growing “solid” to growing “strong” and “strongly.” That #PeakCycle +4.1% headline GDP print was tremendously, strongly, strong, indeed! 

Meanwhile, in real-time economic and market news: 

  1. USA’s ISM for JUL #slowed from 60 in JUN to 58
  2. USA’s Current Production #slowed 3 full points in JUL vs. JUN
  3. USA’s New Orders #slowed 3 full points in JUL vs. JUN as well 

We data dependents took those JUL (i.e. the 1st month of available Q3 data) numbers, dropped them into our predictive tracking algos, and came up with a now-cast for headline (q/q SAAR) GDP of +2.4%. 

On the other side of us, The Atlanta Fed forecast is just inside of what Mnuchin and Kudlow want GDP to be (i.e. 5%) at +4.7%. 

Mathematically speaking (instead of politically), there’s a better chance that I’ll eventually be able to dunk a basketball (I’m a 5’9 ex-hockey player) than US GDP accelerating to +4.7%-5.0% in Q3 with #slowing economic data. 

Then, there’s that other bigly huge part of the Global Growth calculus called China. Here’s the update from the NDRC (National Development and Reform Commission) of China and the Chinese stock market overnight: 

  1. NDRC “expects Chinese consumption growth to slow” due to Chinese housing and incomes #slowing
  2. Shanghai Composite Index down another -2% overnight taking its #crash to -22.2% since JAN 

In China, you could die for making something like that up. 

Chinese housing, incomes, empty cities, etc. #slowing have almost nothing to do with 100% of the headlines Bloomberg.com is running about their fav 3 T’s (Trump, Trade, and Tariffs) this morning. They have everything to do with The Cycle

*See yesterday’s Early Look, titled #ChinaSlowing, Reiterated for the base effect break-down of our call on the Chinese cycle 

Oh, then there’s these two other no longer strongly parts of the “globally synchronized recovery” thing that Establishment Econs, The Fed, The IMF, The ECB, and many CIOs and PMs bought into back in JAN 2018: 

  1. Emerging Markets (EM) #slowing and/or imploding
  2. Commodities (CRB) Index breaking bad to Bearish @Hedgeye TREND 

One of the new @Hedgeye EM poster child’s of what happens when: 

  1. A country’s economy slows while that country is …
  2. Running twin deficits 

Is Turkey. With the Turkish Lira still in crash mode, the Turkish stock market failed at yet another lower-high, dropping another -2% this morning, taking its stock market back into #crash mode at -21.2% since … drumroll… JAN 2018. 

The point about this morning’s note is to be crystal clear about the Hedgeye Macro Team’s view. Unlike our call for #GlobalDivergences in JAN of 2018 (i.e. for China, Europe, and EM to slow while the USA powered to new cycle highs)… 

Our call now is for a globally synchronized slow-down. The US part #slowing may be subtle right now. But all things subtle eventually become less subtle. After that happens, the US Federal Reserve should be moving from strongly hawkish to dovish. 

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

UST 10yr Yield 2.86-3.03% (neutral)
SPX 2 (bullish)
NASDAQ 7 (bullish)
REITS (VNQ) 80.10-82.99 (bullish)
Industrials (XLI) 73.14-77.16 (bearish)
DAX 123 (bearish)
VIX 11.65-14.39 (bullish)
USD 93.90-95.11 (bullish)
EUR/USD 1.15-1.17 (bearish)
Copper 2.70-2.85 (bearish)
AAPL 190.93-202.83 (bullish)
Bitcoin 7 (neutral) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Global #GrowthSlowing - 08.02.18 EL Chart