“The first bowl of chocolate pudding was too hot, but Goldilocks ate it anyway because, hey, it’s chocolate pudding, right”
-Mo Willems 

Forget Old Wall Econ recaps of Friday’s GDP report… a former writer for Sesame Street (Mo Willems) could do a better job depicting the cartoon nature of the headline print vs. economic reality. 

Forget that INVENTORIES and Net EXPORTS accounted for 53% of the headline GDP “beat” (the largest share contribution since Q1 of 2014) and that Real Final SALES (demand) #decelerated to +1.4% q/q SAAR (the slowest pace since Q4 of 2015) too… 

The most obvious contribution to the true but fake news was the US Government using a GDP DEFLATOR (for inflation) of 0.64% (understating inflation overstates Real GDP). If nominal GDP was deflated using government’s own CPI inflation number the headline GDP print would have been HALVED to around +1.6%! 

Goldilocks GDP = ATH - z growth  cartoon 04.05.2016

Back to the Global Macro Grind… 

Welcome to Macro Monday @Hedgeye! 

Rather than ranting further about grossly overstating economic reality, we’ll do what we always do on Day 1 of the week and recap last week’s macro moves within the context of our multi-factor, multi-duration research and risk management #process. 

Starting with the Global Currency market: 

  1. US Dollar Index was up another +0.7% last week to +1.9% YTD and is back to Bullish TREND @Hedgeye  
  2. EUR/USD was down another -0.9% last week to -2.8% YTD and remains Bearish TREND @Hedgeye
  3. Yen was +0.3% vs. USD last week to -1.8% YTD and remains Bearish TREND @Hedgeye
  4. Pound was -0.6% vs. USD last week to +1.3% YTD and remains Bearish TREND @Hedgeye
  5. Canadian Dollar was -0.5% vs. USD last week to +1.3% YTD and remains Bearish TREND @Hedgeye
  6. Argentine Peso was down another -8.8% vs. USD last week crashing to -18.0% YTD = Bearish TREND @Hedgeye
  7. Turkish Lira was down another -2.1% vs. USD last week taking its crash to -10.9% YTD = Bearish TREND @Hedgeye
  8. South Korean Won dropped -1.9% vs. USD last week to -3.8% YTD and remains Bearish TREND @Hedgeye 

Don’t forget that the global economy is coming out of (at what pace of recovery, we don’t yet know) a Globally Synchronized Quad 4 in Q4 of 2018, so this pervasive Dollar Bullishness reflects rear-view economic realities (#slowing) abroad. 

Commodities didn’t like the new immediate-term TRADE #overbought (Real-Time Alerts product) US Dollar highs last week: 

  1. CRB Commodities Index corrected -1.3% last week to +8.7% YTD but remains Bullish TREND @Hedgeye
  2. Oil (WTI) corrected -1.9% last week to +34.0% YTD and remains Bullish TREND @Hedgeye
  3. Copper corrected -1.1% last week to +9.5% YTD, moving back to Bearish (from Bullish) TREND @Hedgeye
  4. Coffee prices deflated -6.2% last week to -1.7% YTD and remain Bearish TREND @Hedgeye
  5. Soy Beans dropped another -3.1% last week to -5.8% YTD and remain Bearish TREND @Hedgeye 

I know. I know. We’re supposed to be having an amazingly huge and awesome “trade deal” with China that is going to bring us many massive China soy bean buys… but evidently the market doesn’t see those as driving gains for US farmers. 

The other big macro thing the market saw in the Goldilocks GDP headline was FALLING Bond Yields: 

A) UST 2yr Treasury Yield dropped a big -10 basis points last week to 2.28% and remains Bearish TREND @Hedgeye
B) UST 10yr Treasury Yield dropped -6 basis points last week to 2.50% and remains Bearish TREND @Hedgeye 

If real demand and corporate profits weren’t #slowing, why has the 10yr UST Yield dropped for 18 of the last 25 weeks? 

No worries though because “stocks” (ex The Dow which was -0.1% last week) were up at ATH (all-time highs) last week: 

A) SP500 was +1.2% last week to +17.3% YTD and remains Bullish TREND @Hedgeye
B) NASDAQ was up another +1.7% last week to +22.8% YTD and remains Bullish TREND @Hedgeye 

Some of the guys (gals are chill) trialing our product get a little testy about where SPY is and don’t like it when I write “remains Bullish TREND” … despite my SPY TREND signal being bullish for months now. 

As power-users of the #process know, #Quad3 is good for things like the NASDAQ and Organic GROWERS. As The Cycle continues to slow on a real economic basis (rising Labor costs and falling corporate margins), #Quad3 pays up for real growth. 

Globally, “stocks” didn’t enjoy the #StrongDollar last week: 

  1. Chinese Stocks were down -5.6% last week to +23.8% YTD and remain Bullish TREND @Hedgeye
  2. Emerging Markets (MSCI) Stocks corrected -1.5% last week to +11.5% YTD and remain Bullish TREND @Hedgeye
  3. Turkish Stocks dropped another -2.2% last week to +3.8% YTD and remain Bearish TREND @Hedgeye 

Was the immediate-term TRADE #overbought signal I issued in USD late last week “the top” for the world’s reserve currency? I don’t know. Tops, like bottoms, are processes, not points. So we’ll remain data dependent and have to see about that. 

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

UST 10yr Yield 2.47-2.61% (bearish)
UST 2yr Yield 2.25-2.43% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bullish)
Shanghai Comp 3045-3217 (bullish)
DAX 111 (bullish)
VIX 11.79-15.27 (bearish)
USD 96.15-98.25 (bullish)
EUR/USD 1.11-1.12 (bearish)
USD/YEN 111.20-112.41 (bullish)
GBP/USD 1.28-1.30 (bearish)
Oil (WTI) 62.01-66.75 (bullish)
Copper 2.85-2.96 (bearish) 

Best of luck out there this week,

KM 

Keith R. McCullough
Chief Executive Officer

Goldilocks GDP = ATH - Chart of the Day