“Success is no accident. It is hard work, perseverance, learning, studying, sacrifice… and, most of all, love what you are doing.”
- Pele
The aforementioned quote comes from a book that I use in coaching (hockey) called Life As Sport. I highly recommend it. There’s an excellent preparation process in that book called focusing on the DOTs. You should try using it professionally.
Your daily DOTs stand for DOING, OUTCOMES, and THINKING. Doing is a lot about being in the moment and focusing on what you can control in that moment. Every outcome isn’t going to be what you want it to be. But when you do something well, you know why it worked.
Doing and thinking are much more important than the outcomes themselves. When I wake up at the top of every risk management morning, I don’t dwell on the trading mistakes I made last week. I focus on using my #process to make the next best decisions.
Back to the Global Macro Grind…
Welcome to Macro Monday @Hedgeye! For those of you who are new to our risk management #process, on the 1st day of every week we review macro market moves from the week prior, contextualizing them within the @Hedgeye TREND duration.
As usual, let’s start with the Global Currency market:
- US Dollar Index was +0.3% last week keeping it above @Hedgeye TREND support, despite being in #Quad3
- EUR/USD was down -0.3% last week to -3.9% year-over-year and remains Bearish TREND @Hedgeye
- Yen was +0.1% vs. USD last week but remains Bearish TREND @Hedgeye
- GBP/USD corrected -0.5% but remains Bullish TREND @Hedgeye
- Chilean Peso continued to crash -3.3% vs. USD last week and -16.4% year-over-year = Bearish TREND @Hedgeye
- South Korean Won dropped another -1.4% vs. USD last week and remains Bearish TREND @Hedgeye
While our USA GDP Nowcast for Q4 continued to fall last week (we’re now at 0.29% q/q SAAR), there are plenty of economic (and currency) problem spots that remain around the world inasmuch as there are plenty of countries moving into better places (i.e. Quads 1 or 2):
A) Germany’s stock market corrected -0.6% last week but this morning’s economic data (better IFO) has it in #Quad2
B) Italy’s stock market corrected -1.4% last week but Q4 economic data has its economy in #Quad2
So, instead of buying a broad basket of “US stocks” (like the Russell 2000, which was down for the 2nd straight week and continues to signal Bearish @Hedgeye TREND), I bought Italian Stocks (EWI) last week. Quad Jedis will recall that Italy entered #Quad4 in Q3 of 2017!
On the US Equity front, it was the 1st down week for SPY in the last 7 and the #Quad3 playbook played out well for us with:
A) Healthcare (XLV) and Utilities (XLU) +0.8% and +0.2% week-over-week (both are #Quad3 longs)
B) Basic Materials (XLB) and Consumer Discretionary (XLY) down -1.7% and -0.9% on the week (not #Quad3 longs)
As we’ve reminded you since making our US #InflationAccelerating call at the beginning of October, this is classic late-cycle #Quad3 Stagflation in the USA… and the US consumer doesn’t like that. That’s why XLY and AMZN have been making lower-highs since July.
On the Commodity Inflation front it was a rather boring week:
- Oil (WTI) was -0.1% week-over-week but is now +4.2% year-over-year and Bullish TREND @Hedgeye
- Lumber inflated another +3.5% and is +13.7% in the last 3 months (another #Quad3 LONG)
- Soybeans deflated another -2.3% and are only +1.3% in the last 3 months despite an “imminent” #BeanDeal
As is customary in #Quad3, High Yield Credit Spreads widened for the 2nd straight week with HY OAS Spread +12 basis points last week to 3.91%. That came on the heels of #GrowthSlowing #Quad3 US economic data which compressed the Yield Curve:
A) UST 2yr Yield was up +2 basis points last week to 1.63%
B) UST 10yr Yield was down -6 basis points last week to 1.77%
That compressed the 10s/2s Yield Spread by -8 basis points to +14 basis points wide which is hardly the “steepening” signal you’d see if there was a US economic acceleration into #Quad2 going on…
#Quad3’s US economic reality pounded a few Factor Exposures you do not want to be long in that Economic Quadrant:
A) SMALL CAP was down -1.7% last week (vs. LARGE CAP -0.1%)
B) HIGH SHORT INTEREST was down -1.0% last week (vs. LOW SHORT INT -0.4%)
That meant that your successes last week being long a US #Quad3 portfolio of Asset Allocations, Sector Styles, and Factor Exposures weren’t luck. Your hard work, patience, and perseverance with the process continues to pay off across the Full Investing Cycle.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.70-1.93% (bearish)
UST 2yr Yield 1.53-1.66% (bearish)
SPX 3077-3130 (bullish)
RUT 1 (bearish)
Utilities (XLU) 61.37-63.76 (bullish)
DAX 13104-13299 (bullish)
VIX 12.01-14.80 (bearish)
USD 97.55-98.43 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 108.15-109.16 (bullish)
GBP/USD 1.27-1.30 (bullish)
Oil (WTI) 55.37-58.91 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
