“I rose like a rocket.”
-Teddy Roosevelt
So did the Chinese stock market, overnight…
“But as his friend Jacob Riis shrewdly warned, if they do shoot up like a rocket they are apt to come down like sticks.” Post Roosevelt’s early political wins (picked as the Republican minority leader), “Roosevelt lost perspective. His head was swelled.”
-Leadership In Turbulent Times (pg 36-37)
As Kearns Goodwin goes on to explain, eventually Roosevelt lived and learned through his early political experiences. Hopefully we all have opportunities to do that in our lives. It’s usually through our mistakes that we can improve as both people and professionals.
Back to the Global Macro Grind…
Welcome to Macro Monday @Hedgeye! Welcome to those of you who are new to our Global Macro Risk Management #process. For those long-time subscribers, thanks for measuring and mapping The Cycle alongside us. On Mondays we do that week-over-week.
Let’s start with the Global Currency Market:
- US Dollar Index corrected -0.4% last week to +0.4% YTD and remains Bullish TREND @Hedgeye
- EUR/USD bounced +0.3% last week to -1.2% YTD and remains Bearish TREND @Hedgeye
- Yen fell -0.2% vs. USD last week to -0.9% YTD and has moved back to Bearish TREND @Hedgeye
- Pound rose +1.2% vs. USD last week to +2.4% YTD and is currently Neutral TREND @Hedgeye
- Canadian Dollar was up another +0.7% vs. USD last week to +3.7% YTD and has moved to Bullish TREND @Hedgeye
- Argentine Peso devalued another -1.5% vs. USD last week to -4.1% YTD and remains Bearish TREND @Hedgeye
China “deal” or not, a pervasively #StrongDollar is what you get when you have both US and Global #GrowthSlowing. This will continue to be a major headwind for SP500 profits in the coming quarters. USD has been Bullish TREND @Hedgeye since APR 2018.
With a small correction in USD and rocketing China expectations, Commodities reflated last week:
- CRB Commodities Index (19 commodities) was +1.5% to +8.4% YTD and are currently Bullish TREND @Hedgeye
- Oil (WTI) was +2.2% last week to +24.1% YTD and breaking out to Bullish TREND @Hedgeye
- Copper was +5.1% last week to +11.7% YTD and breaking out to Bullish TREND @Hedgeye
- Gold was +0.7% last week to +3.3% YTD and remains Bullish TREND @Hedgeye
- Platinum was +4.8% last week to +5.6% YTD and remains Bullish TREND @Hedgeye
- Rubber was +6.6% last week to +9.9% YTD and remains Bullish TREND @Hedgeye
- Soy was only +0.2% last week to +1.8% YTD and remains Neutral TREND @Hedgeye
- Wheat was DOWN -3.0% last week to -3.7% YTD and remains Bearish TREND @Hedgeye
I know. Isn’t the Trump “deal” going to have the Chinese buying many, many, many lots of Soybeans, Wheat, and Corn? Why aren’t those prices up this morning? With Chinese stocks up yuge, why were the KOSPI and Singapore (equities) up less than 0.1%?
Not to ask obvious questions when consensus is chasing the same catalyst, but we’re going to have to see a heck of a reversal in Global Demand (GDP Growth) to confirm some of these short-term market moves.
The macro market move associated the UST 10yr Yield falling for 12 of the last 16 weeks (including last week) is still confirming both US and Global #GrowthSlowing, don’t forget:
- UST 2yr Yield down 2 basis points last week to 2.50% and 2 Year Treasuries remain Bullish TREND @Hedgeye
- UST 10yr Yield down 1 basis point last week to 2.65% and 10 Year Treasuries remain Bullish TREND @Hedgeye
- Yield Curve (10s minus 2s) +1 beep last week to only +16bps wide remains Bearish TREND @Hedgeye
That #GrowthSlowing view supported Utilities (XLU) being one of the best US Sector Styles to be long of last week:
- Utilities (XLU) were +2.4% last week to +7.8% YTD and remain Bullish TREND @Hedgeye
- Basic Materials (XLB) were +2.4% last week to +10.4% YTD and remain Bullish TREND @Hedgeye
- Energy Stocks (XLE) lagged at -0.5% last week to +14.7% YTD and remain Bullish TREND @Hedgeye
Since the asset price reflation that the Fed perpetuates (by going dovish) is going to push the US economy into #Quad3 for the next 2 quarters, 2 of the Sector Styles you want to be long of are Utes (XLU) and Energy (XLE).
If you’re long of Basic Materials (XLB) on the China “deal”, nice call. But I’d book gains there and start shorting XLB as it’s a Top 2 Sector Short in #Quad3 next to the Financials (XLF) which Darius wrote an Early Look on last Friday.
What else happened in Macro last week?
- US Equity Volatility (VIX) was down another -9% to -47% YTD and broke back to Bearish TREND @Hedgeye
- 5yr 5-year Forward US Break-evens bounced +6 basis points last week to 2.02% but remain Bearish TREND @Hedgeye
- High Yield OAS Spread dropped another -8 basis points last week to -132bps YTD and are back to Bearish TREND @Hedgeye
- London (FTSE) didn’t buy into the “deal”, losing -0.8% last week to +6.7% YTD and remains Bearish TREND @Hedgeye
- Italian Stocks lagged (again) at only +0.3% last week to +10.6% YTD and remain Bearish TREND @Hedgeye
“So”… as they like to say on the Old Wall, everything is awesome like it was back in AUG-SEP. No need to worry about anything with China expectations rocketing to the upside and your Central Market Tweeter In Chief trumpeting his version of the new deal, eh?
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.61-2.71% (bearish)
UST 2yr Yield 2.44-2.54% (bearish)
SPX 2 (neutral)
RUT 1 (neutral)
NASDAQ 7 (bullish)
Utilities (XLU) 54.99-57.25 (bullish)
VIX 13.20-18.55 (neutral)
USD 95.95-97.15 (bullish)
EUR/USD 1.11-1.14 (bearish)
USD/YEN 109.80-111.12 (bearish)
GBP/USD 1.27-1.31 (neutral)
Oil (WTI) 51.80-58.91 (bullish)
Gold 1 (bullish)
Copper 2.71-2.99 (neutral)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
