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Below is a detailed summary of our active Macro Themes. The analysis below is largely sourced from our Global Macro Risk Monitor notes. Please email  if you aren’t yet receiving that work and would like to be added to the distribution list. Please note, however, that access is expressly reserved for key client relationships.

#Quad4 in Q3:

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - U.S. GIP Model

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - U.S. Real GDP Estimates YoY

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - U.S. Real GDP Estimates QoQ SAAR

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - U.S. Headline CPI Estimates YoY

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - U.S. Predictive Tracking Algorithm Summary Table

#EarningsRecession:

  • 8/26: The Global Manufacturing Recession Spilled Over Into Domestic CapEx:
  • 8/28: Where to Hide Within US Tech:
  • 9/3: #Quad4 ISM – Nasty Charts (Christian Drake):
    • Philosophers contend that pain is a necessary condition as it's only through the juxtaposition or experience of pain that we can truly feel and appreciate joy. In macro speak, the sweetness of future Quads 1/2 can only be truly appreciated after plumbing the bitter depths of a protracted Quad 4 onslaught.
    • Anyway, the “worst since” descriptors have been piling up across the high-frequency, global Industrial activity data.
    • And while domestic cyclical activity has been deteriorating, it has remained the poster-child for the capacity of late-cycle, debt funded fiscal stimulus to buttress against spillover from synchronized global slowing …… until now. 
    • Headline ISM fell -2.1pts to 49.1, marking the slowest pace of activity and first contractionary print in 3 years while New Orders printed a fresh 124-month low.
    • The dip below the contractionary demarcation line of 50 was pervasive as Current Production, Employment, Inventories, Backlogs, Exports, Imports and Prices all printed sub-50.

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - ISM MANUFACTURING PMI

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - ISM MANUFACTURING NEW ORDERS

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - ISM MANUFACTURING VS. CAPEX

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - ISM Manufacturing New Orders vs. S P 500 EPS YoY

#PeakUSD:

  • 8/13: China’s July Credit Data Confirms Our View of Tight Liquidity Dynamics on the Mainland:
  • 8/13: The European Economy Is Falling Off A #Quad4 Cliff:
    • The only data I’ve seen throughout August-to-date that are worse than China’s deteriorating liquidity dynamics are data detailing the ongoing slowdown across Europe’s core economies. Specifically:
      • French Industrial Production growth decelerated -390bps to 0.0% YoY in JUN – the slowest RoC since MAR
      • German Industrial Production growth decelerated -80bps to -5.2% YoY in JUN – the sharpest contraction since NOV ‘09
      • German Export growth held flat at -0.5% YoY in JUN – tied for the sharpest contraction since JUL ‘16
      • German ZEW Expectations Index contracted -19.6pts to -44.1 in AUG – the lowest reading since DEC ‘11
      • Eurozone ZEW Expectations Index contacted -23.3pts to -43.6 in AUG – the lowest reading since DEC ‘11
      • Spanish Industrial Production growth bounced +40bps to 1.8% YoY in JUN, but…
      • UK Industrial Production growth decelerated -110bps to -0.6% YoY in JUN, while…
      • UK Real GDP growth contracted for the first time since 4Q12 in Q2, slowing -70bps to -0.2% QoQ; that retrenchment translated to a -60bps deceleration in the YoY growth rate to 1.2%
    • Like China, Europe is failing to recover against easing-but-not-easy comparative base effects here in 3Q19E. In addition to these dovish growth signals, the July inflation data suggests a fourth consecutive quarter of #Quad4 is the most probable outcome for the Eurozone economy – which itself has exhibited persistent deceleration since 4Q17:
      • German Wholesale Prices decelerated -20bps to 0.1% YoY – the slowest RoC since SEP ‘16
      • German EU Harmonized Headline CPI decelerated -40bps to 1.1% YoY – the slowest RoC since NOV ‘16
      • German EU Harmonized Core CPI decelerated -60bps to 0.9% YoY – the slowest RoC since MAR ‘17
      • Italian EU Harmonized Headline CPI decelerated -50bps to 0.3% YoY – the slowest RoC since NOV ‘16
      • Italian EU Harmonized Core CPI was unchanged at 0.4% YoY – the slowest RoC since MAR
      • Spanish EU Harmonized Headline CPI was unchanged at 0.6% YoY – tied for the slowest RoC since NOV ‘16
      • Spanish EU Harmonized Core CPI accelerated +20bps to 1.2% YoY
    • All told, while our bullish bias on European sovereign debt (4Q17) and accompanying bearish biases on European financials (4Q17) and the EUR (2Q18) are admittedly long in the tooth, we still think investors have at least until the ECB announces a powerful mix of monetary easing next month to make money on these trades. The BoE likely won’t be far behind with policy rate futures implying a 69% chance of a rate cut on January 30th. OIS spreads and pan-European bond yields literally plunging through the bottom their respective charts are also confirming of these views.
    • In fact, we’re not inclined to back off these views until either the data or markets confirm our #Quad2 forecast for 4Q19E – something that may not become obvious to market participants in reported data terms until late-Q4 or even in Q1 of next year once the lows of Q2/Q3 start to roll out of the moving averages; comps are finally much easier then too. Both Europe and China are fluid situations that require A│B Testing (i.e. market signals + fundamental research) to confirm the pending inflections implied for 4Q19E. Applying our GIP Model risk management system correctly requires as much patience as it does daily diligence.
  • 8/14: China’s July Activity Data Confirmed the Ongoing Economic Distress Signaled by the Tight Liquidity Conditions on the Mainland:
    • Because dead horses don’t deserve to be beaten any more than their temporal counterparts, I’ll make this quick: China’s July activity data signaled a deeper plunge into #Quad4 here in 3Q19E:
      • Retail Sales ↓ -220bps to 7.6% YoY
      • Industrial Production ↓ -150bps to 4.8% YoY – worst print in 17yrs
      • YTD Fixed Assets Investment ↓ -10bps to 5.7% YoY
        • YTD SOE FAI and Infrastructure FAI (proxy for policy support) ↑ +20bps to 7.1% YoY and ↓ -30bps to 3.8% YoY, respectively
        • YTD Private FAI ↓ -30bps to 5.4% YoY
        • YTD Real Estate FAI ↓ -30bps to 10.6% YoY
    • Investors would do well to recall our skepticism surrounding the stabilization seen in the JUN data (from our 7/19 note titled, The China Stabilization Narrative Is Remarkably Unstable):
      • We, more than anyone, should welcome signals of stabilization given our sanguine outlook for the Chinese economy over the next three quarters, but, alas, we do not. What makes this entire situation remarkably unstable is the fact that you simply do not see any evidence of Chinese economic stabilization pretty much anywhere else in the global economy:
      • Did Beijing doctor these prints to bolster their negotiating leverage in the US-Sino trade dispute? I have no idea and neither does China’s credit impulse. But what I do know is that the global economy is teetering closer the edge of recession, per the most relevant metrics, as of the same time period in which China’s so-called stabilization occurred.
    • All told, we reiterate our bearish bias on the Chinese economy, Chinese equities, and the Chinese yuan in conjunction with our #Quad4 view. I know it’s tempting to front-run our GIP Model Quadrant process by looking ahead to the “Quad 2-2-1” progression our comparative base effects model has projected for the three quarters ended 2Q20E, but we continue to urge patience. Today’s price action reminds us that impatient investors can lose a lot of money positioning for the Quadrant outcome they would prefer, not the one the market is pricing in. Give The Cycle time to do what it always does – i.e. cycle.
  • 8/14: The German Economy Contracts and Europe Slows to a ~6yr Low Move On; Nothing to See Here:
    • We beat up the dying horse that is the European economy last night, so I’ll make this quick as well: both Germany and the Eurozone’s Q2 GDP data confirmed our #Quad4 nowcasts for each economy:
    • In addition to these prints, we received a few more #Quad4 high-frequency data points to go along with the bloodbath that was yesterday’s data:
      • Eurozone Industrial Production ↓ -180bps to -2.6% YoY in JUN – the worst contraction since DEC ‘18
      • Eurozone Employment ↓ -20bps to 1.1% YoY in Q2 – the slowest pace of growth since 2Q15
      • France EU Harmonized Headline CPI ↓ -10bps to 1.3% YoY
    • I don’t know how many different ways I can make the same point, but I’m happy to do so at the expense of being a poor macro risk manager: easing comps ≠ easy comps and that’s precisely the challenge each economy is dealing with currently. Structural headwinds aren’t helping either – rapidly deteriorating demographics and policy stagnation in Europe’s case and a broken financing model in China’s. As we wrote yesterday, both Europe and China are fluid situations that require AB Testing (i.e. market signals + fundamental research) to confirm the pending inflections implied for 4Q19E. Applying our GIP Model risk management system correctly requires as much patience as it does daily diligence.
  • 8/22: #Quad4 Continues Plague EM Assets:
    • Why, after having inflected to bearish @Hedgeye TREND back in Q1 of last year, are EM assets still getting pounded here in August? You guessed it – #Quad4.
      • MSCI Emerging Market Index: -5.4% MTD
      • MSCI Emerging Markets Currency Index: -2.7% MTD
      • Bloomberg Barclays EM Local Currency Bond Total Return Index: -1.3% MTD
    • Our analysis is currently showing 52% of the 23 emerging market economies we maintain detailed GIP Models for are tracking in #Quad4 here in 3Q19E from a nowcasting perspective. Recall that neither local nor global #Quad4 is kind to EM equity, credit, or currency risk. Here are a few notable EM economies confirming those nowcasts per the latest batch of high-frequency economic releases:
      • Brazil: IPCA-15 Headline CPI -5bps to 3.22% YoY in AUG (down -74bps sequentially on a quarterly average basis)… EWZ down -8.1% MTD
      • Mexico: Retail Sales: -180bps to 1.0% YoY in JUN (not technically Q3, but a weak handoff relative to the Q2 average)… EWW down -4.7% MTD
      • Russia: Real Retail Sales: -40bps to 1.0% YoY in JUL… RSX down -6.1% MTD
      • Turkey: Industrial Production: -255bps to -3.85% YoY in JUN (again, not technically Q3, but a weak handoff relative to the Q2 average)… TUR down -8.1% MTD
    • All told, we reiterate our bearish bias on EM – which is admittedly long in the tooth – as our “#PeakUSD” Q3 Macro Theme requires time to play out. I would love to back the truck up on “cheap” EM assets as much as the next guy or gal, but as I wrote in my 7/25 note, “…with both the US economy and EM broadly tracking in #Quad4 here in 3Q19E, we continue to suggest that investors would do wait for our all clear signal to go overweight EM assets. We should have some credibility in this discussion after having authored the bear thesis on EM at the start of last year (EEM down -18% from its JAN ’18 peak). That “-18%” has devolved to a full-blown crash, down -24% now from that #timestamped reference point. I know our quarterly GIP Model updates can come across as noise to long-term-low-turnover-long-only investors, but those that understand the benefits of Full-Cycle Investing pay us to prospectively signal where the red “#Quad4’s” are in EM for a reason.
  • 8/26: Germany Signals Decreased Risk of a Sharp Backup in Global Bond Yields:
    • If you’ve grown fatigued by the spate of terrible economic data emanating from the German economy, you’re not alone. Every week it seems like the data just gets worse and worse. Well, that doesn’t mean that it ceases to exist and it’s our duty as leaders of the Full-Cycle Investing movement to maintain our diligence about The Cycle – which has yet to find a bottom in Germany:
      • Ifo Business Climate Index: -1.5pts to 94.3 in AUG; lowest level since NOV ‘12
      • Ifo Current Assessment Index: -2.3pts to 97.3 in AUG; lowest level since NOV ‘14
      • Ifo Expectations Index: -0.8pts to 91.3 in AUG; lowest level since JUN ‘09
    • Whether you look at our nowcasts for German growth or inflation here in 3Q19E, the case for the ECB to introduce a meaningful stimulus package next month has already been made; -0.66% on the German 10yr is confirming of that view as well. Whether or not market participants view that as successful for engineering reflation in European asset markets à la 1H15 and whether the Fed sees that announcement as an amelioration of “global risks” as justification for pursuing a mere -25bps cut the following week on the 18th are the real catalysts to watch for as it relates to global duration risk.
    • This we know: Germany’s projected ascent into #Quad2 in 4Q19E is so muted that it may not even register as such in the minds of investors, let alone lagging ECB policymakers. Moreover, the Fed is falling further and further behind the curve (3m10y = -46bps wide; -40bps MTD) as real interest rates (Real UST 10yr = -0.02%; -28bps MTD) continue to signal further downside in the US economy. Both factors imply dovish forward guidance from both central banks well into Q4, which would serve to meaningfully reduce the risk of a sharp reversal in the performance of bonds and bond proxies globally.
  • 9/3: The Data Has Not Yet Confirmed It’s Safe to Rotate Into Global Cyclicals:

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - China Total Assets of Banking Institutions YoY vs. Shadown Financing YoY

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - Germany ZEW vs. Manufacturing PMI

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - JPM Global Manufacturing PMI

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - Global Manufacturing PMI Summary Chart 8 31 19

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - DXY Global

Hedgeye Global Macro Risk Monitor:

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - Global Macro Risk Monitor

 CLICK HERE to download the table in Microsoft Excel format.

Monthly Macro Themes Monitor: Consensus Is Itching To Get Offensive - Our Risk Management Overlay is Rules Based

Keep your head on a swivel,

DD

Darius Dale

Managing Director