hedgeye's top 3 things
Below are the top three things from Hedgeye CEO Keith McCullough’s Macro Notebook this morning:
1) DOVISH FED - “Buy Stocks” The SPX is up +0.5% DoD brining its WTD performance back to slightly positive. The bounce was led by Energy (+1.3%), Comm Services (+1.1%), and Tech (+0.8%), while the Financials (-0.4%), Industrials (-0.2%), and Materials (-0.2%) were all down on day signaling #Quad3 stagflation. Russell, Transports both down DoD/WTD, while Housing and Gold Miners besting the market return on both durations. HY OAS wider WTD too. We keep saying if you have to “buy stocks” because the Fed is cutting rates, then make sure you buy the right stocks. Refer to our 6/28 Early Look titled, “The Fed Is Gonna Cut Soon… “Buy Stocks!”” for more details.
2) #PEAK USD - Great week for our developing #PeakUSD thesis on Powell’s dovish inflation commentary and equally dovish FOMC minutes. DXY -0.4% yesterday and another -0.2% today. Greenback taking it on the chin vs. peer currencies and “risk on” currencies alike. Bitcoin pulling back but still up another +3.3% WTD and has been signaling a global liquidity injection for months now. Chinese, Japanese, Indian, and South Korean WTD equity performance suggests this has less to do with Global Quad 1 or 2 than it does with the Fed out-doving the ECB in the short term. Hawkish JUN CPI data out of Germany and France this AM contributing to the ongoing dead-cat bounce in European bond yields.
3) COMMODITY REFLATION - One of the biggest mismatches we can have in asset allocation terms with respect to our #Quad4 vs. #Quad3 debate is on Energy. WTI +0.5% DoD to +5.6% WTD. Nat Gas (+2.0%) and Copper (+1.3%) bouncing too, but each of these commodities remains bearish TREND on our signal. Fade the bounce and continue to allocate to Gold if you have to be invested. Gold up another +1.6% WTD taking its return since we introduced our #Quad4 view in mid-MAY to +11.3% (vs. -3.6% for WTI).
Lagarde, The ECB (And The Next Crisis)
The appointment of Christine Lagarde as president of the ECB has been greeted with euphoria by financial markets. That reaction in itself should be a warning signal. When risky assets soar in the middle of a huge bubble due to a central bank appointment, the supervising entity should be concerned.
Lagarde is a lawyer, not an economist, and a great professional, but the market probably interprets correctly is that the European Central Bank will become even more dovish. Lagarde, for example, is a strong advocate of negative rates.