“I can’t control everybody else. I can control my attitude, and I can control my game.”
-Gary Woodland
Love that quote. Whether it’s in risk managing markets or a golf course, that’s a great way to think about The Game. Congratulations to Gary Woodland on winning his first US Open.
Back to the Global Macro Grind…
It’s another Macro Monday here @Hedgeye! For those of you who are new subscribers to our risk management #process, on the 1st day of every week we review the prior week’s macro market moves within the lens of intermediate-term TRENDs.
From a Global Currency market perspective, it was another #Quad4 week:
- US Dollar Index was up another +1.1% last week to +1.5% YTD and remains Bullish TREND @Hedgeye
- EUR/USD was down another -1.2% last week to -2.3% YTD and remains Bearish TREND @Hedgeye
- Yen corrected -0.4% vs. USD last week to +1.0% YTD and remains Bullish TREND @Hedgeye
- GBP/USD was down another -1.2% last week to -1.3% YTD and remains Bearish TREND @Hedgeye
- Brazilian Real was down -0.4% vs. USD last week to -0.3% YTD and remains Bearish TREND @Hedgeye
- Aussie Dollar was down -1.8% vs. USD last week to -2.5% YTD and remains Bearish TREND @Hedgeye
As a reminder, back-tested against The Quads, the US Dollar has its highest expected value when both the US and Global economy are in Quad 4. Non-Oil Exports in Singapore are DOWN -15.9% year-over-year this morning. No worries.
It was another #Quad4 week for Commodities too:
- Oil (WTI) deflated another -2.7% last week to +11% YTD and remains Bearish TREND @Hedgeye
- Copper barely bounced at +0.1% last week to -0.5% YTD and remains Bearish TREND @Hedgeye
- Coffee was down another -5.4% last week to -11.3% YTD and remains Bearish TREND @Hedgeye
- Cattle was down another -1.3% last week to -10.4% YTD and remains Bearish TREND @Hedgeye
Both the bond market and break-evens understand that GROWTH and INFLATION are #slowing (i.e. Quad 4) too:
A) UST 2yr Yield was down another basis point last week to 1.84%
B) UST 10yr Yield was flat at 2.08% and is down -60 basis points YTD
C) 5yr 5-year Forward Break-evens were down -7 basis points to 1.79%
Not ironically, our now-cast for Quad 4 in Q3 US headline INFLATION is 1.79% as well.
But, but… even though SPY has been down for 3 of the last 4 trading days, “stocks” were up last week, eh? Well, the stocks that are in the sectors that you want to be long in Quad 4 were up:
A) Utilities (XLU) were up another +1.3% last week to an all-time high and remain Bullish TREND @Hedgeye
B) REITS (VNQ) were up another +0.8% last week to just inside of the 2016 all-time high = Bullish TREND
Whereas two of the big Sector Styles you want to be underweight and/or short in #Quad4:
A) Energy (XLE) was down another -0.4% last week and remains Bearish TREND @Hedgeye
B) Tech (XLK) was down -0.1% last week and remains Bearish TREND @Hedgeye
From a Factor Exposure perspective, GROWTH did what Tech did last week, with the Top 25% SALES Growth names in the SP500 down -0.1% last week (vs. SPY +0.5%).
In terms of Global Equity performance and TREND signals here were some of the important callouts:
- Spain was down -0.5% last week and remains Bearish TREND @Hedgeye
- Mexico was down -0.4% last week and is a new Bearish TREND @Hedgeye
- China had a Counter @Hedgeye TREND bounce of +1.9% last week (after being -2.5% the week prior)
- Turkey continued to be in #crash mode, down -3.2% last week = Bearish TREND @Hedgeye
- India corrected -0.3% within its Bullish @Hedgeye last week
So, with India in Quad 1 here in Q3, I’d buy more of that via INDA this morning. While INDA hasn’t quite made an all-time high like Utes (XLU) have this year, it was one of the best places to have a Global Equity allocation in May.
I realize that through the lens of The Quads isn’t how most people see markets. I’m totally cool with that (and want and need that). I can’t control everybody else. With my own money however, I can control how I both see and play The Game.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.05-2.17% (bearish)
UST 2yr Yield 1.78-1.95% (bearish)
SPX 2 (neutral)
RUT 1 (bearish)
Utilities (XLU) 58.53-61.18 (bullish)
REITS (VNQ) 87.03-90.58 (bullish)
Shanghai Comp 2 (bearish)
VIX 15.08-19.87 (bullish)
USD 96.30-97.45 (bullish)
EUR/USD 1.11-1.13 (bearish)
USD/YEN 107.75-109.22 (bearish)
GBP/USD 1.25-1.27 (bearish)
Oil (WTI) 50.18-54.41 (bearish)
Copper 2.60-2.68 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
