“The beginnings of mathematics were grounded in every day concerns.”
- Steven Strogratz
That’s the opening volley in a chapter Strogatz titled “Infinity” from a history of math book I’ve been citing this year called Infinite Powers. “Shepherds needed to keep track of their flocks. Farmers needed to weigh the grain reaped in the harvest”…
And now US Equity Investors need to count how many times Larry Kudlow is going to talk up “stocks” on Fridays, despite US economic data slowing at a faster rate (and not mentioning any of it).
On the heels of a -100 basis point #slowing of US Retail Sales and the US Industrial Production #recession slowing to -1.13% year-over-year, the Hedgeye Nowcast for US GDP in Q4 of 2019 has dropped to a headline of 0.31% q/q SAAR.
Back to the Global Macro Grind…
Welcome to Macro Monday @Hedgeye. On the first day of the week we review what happened across Global Macro markets in the prior week within the context of intermediate-term @Hedgeye TRENDs.
Let’s start with the Global Currency market:
- US Dollar Index corrected -0.4% last week but remains Bullish TREND @Hedgeye (despite making a series of lower-cycle-highs)
- EUR/USD bounced +0.3% last week to -2.4% year-over-year and remains Bearish TREND @Hedgeye
- Japanese Yen was +0.5% vs. USD last week and remains Bearish TREND @Hedgeye
- GBP/USD was up another +1.0% last week and remains a relatively new Bullish TREND @Hedgeye
- Canadian Dollar was flat vs. USD last week and also remains Bullish TREND @Hedgeye alongside Commodities
- Chinese Yuan corrected -0.2% vs. USD last week to -1.0% year-over-year and remains Bearish TREND @Hedgeye
The Commodities we like (long side) generally liked Down Dollar last week whereas the beautifully big and huge #BeanDeal did not:
- Oil (WTI) reflated another +0.8% last week and remains Bullish TREND @Hedgeye
- Lumber was up another +0.9% last week and remains Bullish TREND @Hedgeye
- Cocoa ramped +7.3% last week and remains Bullish TREND @Hedgeye
- Copper was down another -1.5% last week and remains Bearish TREND @Hedgeye
- Soybeans deflated another -1.4% last week and are back to Bearish TREND @Hedgeye
That’s right, despite Trump tweeting something about “farmers enjoy” on Sunday, neither the Chinese are buying into a resurgence in Industrial demand (Copper) nor was the world willing to chase the #BeanDeal in soybean terms.
Don’t worry, I’ll get to US “stocks” after I make a few more globally interconnected macro points on this:
A) Chinese Stocks (Shanghai Comp) were down another -2.5% last week and remain Bearish TREND @Hedgeye
B) The Hang Seng was down another -4.8% last week and remains in #crash mode (i.e. Bearish TREND)
C) Emerging Market (MSCI) “stocks” were down -1.5% last week and remain Neutral TREND @Hedgeye
I know. London’s FTSE (stock market) was down -0.8% last week too. Weird, eh?
But let’s give the all-time SPY high what Larry loves (and give it its due!) - on a -13% deceleration in Total US Equity Volume day (vs. the 1-month) average, the SP500 was +0.9% last week with:
A) Healthcare (XLV +2.5%), Utilities (XLU +1.8%), and REITS (VNQ +1.7%) leading last week’s charge vs.
B) LEVERAGE, HIGH BETA, and SMALL CAP US Equity Factor Exposures all down -0.1-0.2% on the week
That’s right, the SMALL CAP bench (Russell 2000) that not as many PMs have to chase into “year-end” was actually down -0.2% last week, taking its loss (from The US Cycle peak in Q3 of 2018) to -8.3%.
The other thing that didn’t cooperate with Larry’s narrative last week was the bond market:
A) UST 2yr Yield dropped -6 basis points last week to -124 basis points year-over-year
B) UST 10yr Yield dropped -11 basis points last week to -128 basis points year-over-year
And The Curve compressed (10yr minus the 2yr yield) by -5 basis points week-over-week on the heels of the aforementioned #slowing US economic data.
Other than the everyday concerns of both the data and the internals of the Global Macro market, what could possibly go wrong?
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.75-1.95% (bearish)
UST 2yr Yield 1.51-1.69% (bearish)
SPX 3060-3129 (bullish)
RUT 1 (bearish)
Utilities (XLU) 61.04-63.52 (bullish)
REITS (VNQ) 90.21-93.50 (bullish)
Shanghai Comp 2 (bearish)
VIX 11.91-14.99 (bearish)
USD 97.25-98.43 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 108.08-109.54 (bullish)
GBP/USD 1.28-1.30 (bullish)
Oil (WTI) 54.65-58.06 (bullish)
Copper 2.60-2.70 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
