Return of The #Quad4?

“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: 

1. US Dollar Index was up another +1.1% last week to +0.5% YTD and remains Bullish TREND @Hedgeye
2. EUR/USD was down another -1.2% last week to -1.3% YTD and remains Bearish TREND @Hedgeye
3. British Pound was down -1.0% vs. USD last week to +1.5% YTD and is back to Bearish TREND @Hedgeye
4. Japanese Yen was -0.2% vs. USD last week to -0.1% YTD and remains Bullish TREND @Hedgeye
5. Argentine Peso was down another -1.9% vs. USD last week to -0.8% YTD and remains Bearish TREND @Hedgeye
6. 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: 

1. EuroStoxx600 was down -0.5% last week to +6.0% YTD and remains Bearish TREND @Hedgeye
2. Germany’s DAX was down another -2.5% last week to +3.3% YTD and remains Bearish TREND @Hedgeye
3. 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: 

1. CRB Commodities Index was down -1.4% last week to +4.9% YTD and remains Bearish TREND @Hedgeye
2. Oil (WTI) deflated -4.6% last week to +15.3% YTD and remains Bearish TREND @Hedgeye
3. Natural Gas dropped another -4.4% last week to -8.3% YTD and remains Bearish TREND @Hedgeye
4. Gold corrected -0.3% last week to +2.3% YTD and remains Bullish TREND @Hedgeye
5. 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: 

1. Energy Stocks (XLE) led US Equity Sector Style losers at -3.0% last week
2. 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 11^th 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