“You cannot hide forever, Luke.”
-Darth Vader
Isn’t that a cheery way to start your Monday morning! No worries Jedis of the data dependence revolution - we know how the story ultimately ends. Macro Tourists can’t hide from The Cycle forever.
Back to the Global Macro Grind…
It’s Macro Monday @Hedgeye! For those of you who are new to our #process (thanks for joining us), at the beginning of every week we review last week’s Global Macro market moves within the context of our multi-factor and multi-duration model.
Let’s start with the Galactic Currency War:
- US Dollar Index was up another +1.1% last week to +0.5% YTD and remains Bullish TREND @Hedgeye
- EUR/USD was down another -1.2% last week to -1.3% YTD and remains Bearish TREND @Hedgeye
- British Pound was down -1.0% vs. USD last week to +1.5% YTD and is back to Bearish TREND @Hedgeye
- Japanese Yen was -0.2% vs. USD last week to -0.1% YTD and remains Bullish TREND @Hedgeye
- Argentine Peso was down another -1.9% vs. USD last week to -0.8% YTD and remains Bearish TREND @Hedgeye
- Australian Dollar was down -2.2% vs. USD last week to +0.6% YTD and remains Bearish TREND @Hedgeye
Yeah, that’s what we call a #Quad4 week for FX. #StrongDollar being perpetuated by Global #GrowthSlowing data. With Italy officially in a recession, #EuropeSlowing data continued and this morning’s UK data slowed at a faster rate too.
While plenty of valuation experts have been buying European stocks “because they’re cheap” (on the wrong numbers) for over a year now since The European Cycle peaked, we Jedi have been short of them. Here’s how they did last week:
- EuroStoxx600 was down -0.5% last week to +6.0% YTD and remains Bearish TREND @Hedgeye
- Germany’s DAX was down another -2.5% last week to +3.3% YTD and remains Bearish TREND @Hedgeye
- Spain’s IBEX was down another -1.8% last week to +3.7% YTD and remains Bearish TREND @Hedgeye
Remember the alleged “trade deal” Trump had with the Europeans last year? That worked out great for their respective economic cycles, didn’t it? It’s still #Quad4 in Italy and France in particular with the Swiss 10yr Yield agreeing at -0.34%.
What else did the #Quad4 USD move do to macro markets? It deflated YTD #Quad3 moves in Commodities and Equities:
- CRB Commodities Index was down -1.4% last week to +4.9% YTD and remains Bearish TREND @Hedgeye
- Oil (WTI) deflated -4.6% last week to +15.3% YTD and remains Bearish TREND @Hedgeye
- Natural Gas dropped another -4.4% last week to -8.3% YTD and remains Bearish TREND @Hedgeye
- Gold corrected -0.3% last week to +2.3% YTD and remains Bullish TREND @Hedgeye
- Lean Hogs deflated another -2.8% last week to -12.9% YTD and remain Bearish TREND @Hedgeye
Yep, Gold likes Quad 3 more than it does Quad 4 because in Quad 3 the US Dollar isn’t competing with it for absolute return. But we’ll stay with Long Gold and Long Treasuries while we take our time with a decision to buy Energy stocks on sale for Quad 3:
- Energy Stocks (XLE) led US Equity Sector Style losers at -3.0% last week
- Utilities (XLU), which do well in both Quads 4 and 3 had another solid week at +2.1%
With the 10yr US Treasury Yield down for the 11th week in the last 14, The Force clearly remains with our Long Treasuries and US Bond Proxies (REITS up another +1.5% last week to +12.8% YTD) positions which, again, generated plenty of alpha.
While many chart chasers have been fascinated with 6 week up-moves in equity markets, most of the aforementioned longs (ex-Gold) are almost 6 month old positions for us. I guess that makes us Jedi the longer-term investors these days.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.61-2.77% (bearish)
SPX 2 (bearish)
Utilities (XLU) 52.15-56.26 (bullish)
REITS (VNQ) 80.69-85.00 (bullish)
DAX 105 (bearish)
USD 94.80-96.75 (bullish)
EUR/USD 1.12-1.14 (bearish)
USD/YEN 108.60-110.36 (bearish)
GBP/USD 1.28-1.31 (bearish)
Oil (WTI) 52.01-55.40 (bearish)
Nat Gas 2.47-2.99 (bearish)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
