“Mathematically, circles embody change without change.”
- Steven Strogatz
Got friends running around in Old Wall media’s Macro Tourist circles? Measuring and mapping American and Chinese sine curves, “change” without economic change sounds like the trumped up “trade deal” to me.
As Strogatz goes on to explain in Infinite Powers – How Calculus Reveals The Secrets of The Universe, “even when geometry was fixated on straightness, one curve always stood out: the most perfect of all, the circle.”
“Calculus began as an outgrowth of geometry. Back around 250 BCE in ancient Greece, it was a hot little mathematical startup devoted to the mystery of curves. The ambitious plan of its devotees was to use infinity to build a bridge between the curved and the straight.”
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye. If you celebrated it in the USA, I hope you had a healthy and happy Thanksgiving with your families. The top of my risk management morning sure felt early this morning!
It was a holiday shortened week with incredibly low market volumes, so I don’t want to read much into the week-over-week moves, but bean counting is what it is and needs to be done this morning.
Here’s what Global Currency markets did last week:
- US Dollar Index was dead flat at 0.0% on the week and remains Bullish TREND @Hedgeye with a not Dovish Enough Fed
- EUR/USD was flat as well last week and remains Bearish TREND @Hedgeye at -3.3% year-over-year
- Yen was down another -0.9% vs. USD last week and remains Bearish TREND @Hedgeye
- GBP/USD gained another +0.7% last week to +1.0% year-over-year and remains Bullish TREND @Hedgeye
- Brazilian Real dropped another -1.0% vs. USD last week to -9.1% year-over-year and remains Bearish TREND @Hedgeye
- Chinese Yuan (CNY/USD) was +0.1% last week to -1.3% year-over-year and remains Bearish TREND @Hedgeye
While Wall Street consensus wants to (needs to) believe that “the bottom is in” for The Cycle, neither the PBOC (Governor Yi saying to expect a “protracted slow-down” post China’s underwhelming PMI print of 50.2 this AM) nor EM Equities believe that:
- China’s Shanghai Composite Index was down another -0.5% last week and remains Bearish TREND @Hedgeye
- Emerging Markets (MSCI) Equities were down -0.8% last week and remain Bearish TREND @Hedgeye
- Mexican Stocks dropped another -1.6% last week and remain Bearish TREND @Hedgeye
That’s right. We’ve had a “deal” with Mexico for a while now and what did that change? It’s not changing demand for the beans in the alleged #BeanDeal either. Soybeans deflated another -2.3% last week to -7.3% year-over-year.
Last week we got a buying opportunity in what the Fed is now trying to leak that they’ll let “run hot” (i.e. #InflationAccelerating):
- Commodities (CRB) Index corrected -2.1% but remain Bullish TREND @Hedgeye since OCT 2019
- Oil (WTI) corrected -4.5% but remains Bullish TREND @Hedgeye
- Cocoa (NIB) corrected -1.9% but remains Bullish TREND @Hedgeye
The way I see this playing out in the next 3-6 months is:
A) “Deal” or no deal, there will be no change in #Quad3 rate of change slow-downs in both China and the USA
B) The Fed will have to jump in again, trying to go Dovish Enough (trying to devalue the Dollar, finally) … and
C) Economic Stagflation (#Quad3) will be perpetuated by Down Dollar, Rising Commodities (i.e. cost of living)
While it might be a little harder to get a US Equity only PM to believe that outlook until we count down what remains in the “year-to-date”, I think the Treasury Bond market absolutely agrees with #Quad3.
If it didn’t, the UST 10yr Yield would breakout to Bullish TREND @Hedgeye like it always does during a #Quad2 real economic #acceleration. Mathematically, we have a process to measure and map that in real-time.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.71-1.86% (bearish)
UST 2yr Yield 1.53-1.67% (bearish)
SPX 3092-3160 (bullish)
RUT 1 (bearish)
Energy (XLE) 58.40-60.53 (bullish)
Shanghai Comp 2 (bearish)
DAX 13071-13403 (bullish)
VIX 11.50-14.46 (bearish)
USD 97.47-98.50 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 108.13-109.72 (bullish)
GBP/USD 1.28-1.30 (bullish)
Oil (WTI) 54.99-59.76 (bullish)
Copper 2.62-2.72 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
