“The Four Seasons is as close to a pop hit as three-hundred-year-old music gets.”
-David Epstein
Forget the Red Priest (Vivaldi) this morning. European markets have Draghi!
Paraphrasing Epstein in Range (with a Hedgeye Macro tilt), ‘anywhere a Macro Tourist in 17th century Venice turned an ear, they could hear music and money-printing exploding from its traditional bounds.” (pg 55)
Oh yes, the sweet music of central-market-planning #cowbell is as old as The Cycle #slowing gets. The Goldman turned Italian-money-printer is saying he’ll go for “more rate cuts” if the “outlook” doesn’t “improve.” Believe him!
Back to the Global Macro Grind…
If Draghi is still who I think he is (the money-printing equivalent of Vivaldi, who will do “whatever it takes”), PE Powell certainly has his work cut out for him this summer. This concert will be called the 2019 Edition of The Currency War.
Not to be confused with the Washington, D.C. Big Band Singer, Jerome Powell, Private Equity’s Jay Powell is a former Board Member of the Chevy Chase Country Club, worth over $100M bucks, and plays the guitar.
At tomorrow’s Fed meeting, can Powell be more dovish than Draghi is this morning?
A: Probably not. The worst of the US economic data hasn’t been reported, yet. If he doesn’t want to look completely politicized, the Q2 (Quad 3) data wasn’t dovish enough.
I think Quad 4 in Q3 data (JUL GDP with a 1% handle and the lowest inflation prints of the year in AUG) will be.
In the meantime, the Asian and European economic data continues to be rancid:
- Singapore non-Oil Exports #slowed to -15.7% year-over-year growth in MAY vs. -10.0% in APR
- Germany’s ZEW (confidence reading) #crashed to -21.1 in JUN vs. -2.1 in MAY
- Eurozone ZEW #crashed to -20.2 in JUN vs. -1.6 in MAY
And this, of course, is post a wonderfully awesome and huge “trade deal” Trump struck with the Europeans last year. But have no fear, Draghi is here! This is how that works:
- Ring The #Cowbell (tell the world the ECB can cut rates further)
- Devalue The Euro (EUR/USD testing cycle lows at $1.11 this am)
- Eviscerate Bond Yields
Check, check, check. Per Epstein in Range, “Virtuosos, the original music celebrities, were anointed.” Central-market-planners of the 21st century, unite!
Don’t think people believe Draghi? Check out this move in the Global Bond Market this morning:
- Swiss 10yr Yield down another -4 basis points to -0.54%!
- German 10yr Bund Yield down another -5 basis points to a new all-time low of -0.30%!
- Italian 10yr Yield down -10 basis points and Dutch 10s collapse to -0.14%!
This, of course, is awesome for our #1 Asset Allocation (Long Treasuries, across the curve) and our:
- Long Bond Proxies (REITS joined Utilities, making fresh all-time highs yesterday)
- Short Banks, Financials, etc. with the KRE and XLF down -1.4% and -0.9% yesterday, respectively
But this is not awesome for “Devalue The Dollar” (Fed Cut) expectations:
- Oil is down another -0.7% this morning with Oil Volatility (OVX) breaking out to 46
- SP500 Earnings translation, where the Old Wall is dropping Q219 “forecasts” like rock pre the prints
But, no worries, when the Fed cuts “you have to buy stocks!”
While that’s true 50% of the time (see prior Early Looks for a break-down on the last 11 rate-cut cycles), then there’s the other 50% of the time + this time.
Notwithstanding that 100% of the time that the US enters an #EarningsRecession both “stocks” and high-yield credit have big draw-downs, this time it’s the modern day equivalent of Vivaldi vs. Jay and his PE Band guitar.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.03-2.16% (bearish)
SPX 2 (neutral)
RUT 1 (bearish)
Utilities (XLU) 59.05-61.18 (bullish)
REITS (VNQ) 87.38-90.91 (bullish)
Financials (XLF) 26.02-27.43 (bearish)
VIX 15.02-18.75 (bullish)
USD 96.30-97.38 (bullish)
EUR/USD 1.11-1.13 (bearish)
Oil (WTI) 50.14-54.17 (bearish)
Gold 1 (bullish)
Bitcoin 7 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
