Euro Twitter Trolls

“Use free Wi-Fi and become a Twitter troll.”
-Francesco Molinari 

Apparently the Italian star of Europe’s winning 2018 Ryder Cup team has big plans for retirement. He wants to hang out at coffee shops, have 3 cups per day, and “read books, maybe” too. #cool 

After a performance like that, he can do whatever he wants. He and his teammates had Team USA feeling shame. 

Those who were long of Italian stocks and bonds felt shame last week too. If Molinari wants to retire early, he should focus on US Dollar payout tour events. If he gets paid in Euros, those coffees might just start getting more expensive intra-day at some point. 

Back to the Global Macro Grind… 

Ryder Cup and Fantasy Football Sunday is #over. It’s Macro Monday! 

Good morning from San Francisco, California. For those of you who are new to our risk management #process, on Mondays we try to frame up last week’s macro moves within the context of @Hedgeye TRENDs. 

As has become customary during the 2018 mess in foreign currency markets, let’s start with FX: 

1. US Dollar Index had a great week, closing up a full +1.0% to +3.3% YTD and remains Bullish @Hedgeye TREND
2. EURO/USD got tagged for a -1.2% loss, pulling back to -3.3% YTD and remains Bearish TREND @Hedgeye
3. Japanese Yen dropped another -1.0% vs. USD last week to -0.9% YTD and remains Bearish TREND @Hedgeye
4. British Pound fell another -0.3% vs. USD last week to -3.6% YTD and remains Bearish TREND @Hedgeye
5. New Zealand’s currency dropped another -1.0% vs. USD last week to -6.7% YTD and remains Bearish TREND @Hedgeye
6. Argentina’s Peso continued to crash, down another -10% last week to -54.9% YTD and remains Bearish TREND @Hedgeye 

I know. I know. Who cares about New Zealand? Who cared about Canada until this morning either? In easily one of the best Macro Tourist head-fake-news mornings of 2018, you can re-short Canadian Dollars vs. USD this morning too. 

Ex-Oil, Commodities remain a glaring Quad 4 danger spot as we enter Q4: 

1. CRB Commodities Index nudged +0.6% higher last week to +0.7% YTD but remains Bearish TREND @Hedgeye
2. Oil (WTI) ramped another +3.5% last week to +25.5% YTD and remains Bullish TREND @Hedgeye
3. Gold was down another -0.4% last week to -10.3% YTD and remains Bearish TREND @Hedgeye
4. Copper was down another -1.8% last week to -16.3% YTD and remains Bearish TREND @Hedgeye
5. Nickel was down another -5.0% last week to -3.0% YTD and remains Bearish TREND @Hedgeye
6. Corn was down another -0.3% last week to -7.2% YTD and remains Bearish TREND @Hedgeye 

Sugar continued to #crash too, closing down another -4.1% last week to -28.6% YTD. But who wants to talk about that when we can navel gaze at GE “surging” off the lows this morning? 

Thankfully we didn’t get sucked into chasing the counter TREND bounces we saw on Dollar Down weeks in mid SEP (USD is +5.6% in the last 6 months). The last week of September was downright ugly for plenty of European and Emerging Market Equity exposures: 

1. Italy’s MIB Index led losers, down -3.8% on the week to -5.2% YTD and remains Bearish TREND @Hedgeye
2. Germany’s DAX dropped -1.5% last week to -5.2% YTD and remains Bearish TREND @Hedgeye
3. Spain’s IBEX fell another -2.1% last week to -6.5% YTD and remains Bearish TREND @Hedgeye
4. India’s stock market corrected another -2.4% last week to only +1.4% YTD and is a new Bearish TREND @Hedgeye
5. Thailand’s stock market dropped another -1.4% last week to -15.0% YTD and remains Bearish TREND @Hedgeye 

So we’ll reiterate our GIP (Growth, Inflation, Policy) model keeping you out of all 5 of those problem spots for all of 2018 YTD and also remind you of the risks associated with being consensus and buying rate-sensitive US Equity Factor Exposures: 

A) US Financials (XLF) got tagged for a -4.0% loss last week to -1.2% YTD and remain Bearish TREND @Hedgeye
B) Russell 2000 (IWM) corrected -0.9% last week to +10.5% YTD and is teetering on a @Hedgeye TREND break-down 

Those sector and style factor (small/mid cap) exposures combined with High DEBT and/or High BETA (both down -2% last week), were nasty on both an absolute and relative basis last week. Why? Quad 4 in Q4, baby! 

As we reviewed on our Q4 Macro Themes call last week, US Healthcare (XLV) is a Top 3 US Equity Sector Style LONG in Quad 4. Healthcare stocks (XLV) were up another +0.9% last week to +15.1% YTD.

With the SP500 (down -0.5% last week) only having had 1 real up day in the last 6 since making a fresh all-time closing high in SEP, you’ll get some Day 1 of OCT green on the screens to capitalize on this morning. Gotta love those Twitter Trolls and Macro Tourists! 

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

UST 10yr Yield 2.94-3.11% (neutral)
SPX 2 (bullish)
RUT 1 (neutral)
DAX 12121-12501 (bearish)
USD 93.25-95.11 (bullish)
EUR/USD 1.15-1.18 (bearish)
YEN 111.90-114.12 (bearish)
GBP/USD 1.29-1.32 (bearish)
Oil (WTI) 68.80-73.77 (bullish)
Gold 1178-1205 (bearish)
Copper 2.66-2.88 (bearish)
Corn 3.42-3.67 (bearish) 

Best of luck out there this week,

KM 

Keith R. McCullough
Chief Executive Officer