Another Quad 4 Week

“This nation will remain the land of the free only so long as it is the home of the brave.”
-Elmer Davis

First and foremost, I want to thank all of the men and women who serve and protect their respective countries this morning. It’s Veteran’s Day in the USA. It’s always a good day to give thanks.

Back to the Global Macro Grind…

It’s also Macro Monday here @Hedgeye. Thanks to all of you who are new to our risk management #process as well. On the 1^st day of every week we review what happened week-over-week in Global Macro within the context of our intermediate-term @Hedgeye TREND views.

Ultimately, even though some stock markets had bear market bounces last week, it paid to be long of Quad 4 exposures. In FX, the best of those positions remains #StrongDollar:

1. US Dollar Index was up another +0.3% last week to +5.2% YTD and remains Bullish @Hedgeye TREND
2. EUR/USD was down another -0.4% last week to -5.6% YTD and remains Bearish @Hedgeye TREND
3. Yen (vs. USD) was down -0.5% last week to -1.0% YTD and remains Bearish @Hedgeye TREND
4. Canadian Loonie (vs. USD) was down -0.6% last week to -4.7% YTD and remains Bearish @Hedgeye TREND
5. Brazilian Real (vs. USD) reversed again, closing down -1.2% last week to -11.2% YTD and remains Bearish @Hedgeye TREND
6. Russian Ruble (vs. USD) continued to crash, down -2.8% last week to -15.2% YTD and remains Bearish @Hedgeye TREND

That’s right. If you’re long of US Dollars and getting paid in US Dollars, Quad 4 is great for you and your family. If you’re getting paid in one of the aformentioned crashing currencies, not so much. 

As you know, pervasive US Dollar strength is also deflationary: 

1. CRB Commodities Index (19 commodities) was down another -2.0% last week to -2.8% YTD and remains Bearish @Hedgeye TREND
2. Oil (WTI) moved into crash mode -5.2% last week to +3.0% YTD and remains Bearish @Hedgeye TREND
3. Copper continued to crash -4.5% last week to -20.0% YTD and remains Bearish @Hedgeye TREND
4. Corn was down another -0.4% last week to -3.7% YTD and remains Bearish @Hedgeye TREND
5. Coffee deflated -5.1% last week to -16.1% YTD and remains Bearish @Hedgeye TREND

I know. Quad 4 Deflation ultimately leads to falling inflation expectations and … drumroll… falling bond yields. In spite of the bear market bounce in Global Equities last week, the UST 10yr Yield was down -3 basis points last week to 3.18%.

And… about that bear market bounce – some Global Equity Indices did not bounce:

1. Emerging Markets (MSCI) were down another -0.3% last week to -14.2% YTD and remains Bearish @Hedgeye TREND
2. Chinese Stocks were down another -2.9% last week taking their crash to -21.4% YTD and remains Bearish @Hedgeye TREND
3. Mexican Stocks were down another -2.3% last week to -10.3% YTD and remains Bearish @Hedgeye TREND

Mexico Mucker? Are you kidding me? Nope. The alleged “end” to the Macro Touristy “trade war” with Mehico has done absolutely nothing for the Mexican economy. It’s still Quad 3 and Quad 4 in Latin America, China, and Canada, eh. 

But, no worries…

US stocks bounced last week. And … the bounce was led by what does well in Quad 4 anyway:

1. Utilities (XLU) were +3.2% last week to +4.2% YTD and remain Bullish TREND @Hedgeye
2. Healthcare Stocks (XLV) were +4.1% last week to +12.4% YTD and remain Bullish TREND @Hedgeye

Lagging the US Equity Beta bounce (SPY +2.1% last week) were a one of the best Quad 4 underweights (shorts) at the Sector Style level. Tech Stocks (XLK) were only +1.6% week-over-week and remain Bearish TREND @Hedgeye.

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

UST 10yr Yield 3.05-3.24% (bullish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7135-7619 (bearish)
Utilities (XLU) 52.95-55.55 (bullish)
Consumer Staples (XLP) 54.50-57.29 (bullish)
Industrials (XLI) 67.30-74.09 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 21142-22623 (bearish)
DAX 118 (bearish)
VIX 15.05-25.52 (bullish)
USD 95.65-97.75 (bullish)
EUR/USD 1.12-1.14 (bearish)
YEN 112.05-114.41 (bearish)
GBP/USD 1.26-1.30 (bearish)
Oil (WTI) 59.06-63.91 (bearish)
Nat Gas 3.40-3.90 (bullish)
Gold 1 (neutral)
Copper 2.60-2.80 (bearish)
Corn 3.63-3.78 (bearish) 

Best of luck out there this week,

KM 

Keith R. McCullough
Chief Executive Officer