Jobs & GDP Slow Again

“Metaphors and prophecy have their place, yet we live in the real world.”
- Jim Rickards

That’s another good quote from Rickards’ latest book, Aftermath. In the real world, there is no World War III this morning. The greatest #BeanDeal in the history of humanity won’t revive Q4 US GDP growth either. 

Post Friday’s US Jobs #GrowthSlowing report (to a new cycle low of +1.40% year-over-year NFP growth), our predictive tracking algo for US headline GDP growth slowed to +0.03% for Q4 of 2019. 

No, that’s not a typo. It’s consistent with the broad-based negative rate of change data that was publicly released throughout Q4. It was Presidential prophecy about the economy that may have distracted you from realizing that. It’s the art of the deal!

Back to the Global Macro Grind…

Let’s start with the Global Currency market, which had a Counter @Hedgeye TREND bounce in the USD last week:

1. US Dollar Index bounced +0.5% last week but remains Bearish TREND @Hedgeye with the USA in #Quad3
2. EUR/USD corrected -0.4% last week but is +0.3% in the last month and remains Bullish TREND @Hedgeye  
3. Japanese Yen dropped -1.2% vs USD last week and has moved back to Bearish TREND @Hedgeye this AM
4. GBP/USD corrected -0.2% last week but remains Bullish TREND @Hedgeye 
5. Canadian Dollar was -0.4% vs. USD last week but is +1.4% in the last month and is Bullish TREND @Hedgeye  
6. Russia’s Ruble was up another +1.7% vs. USD last week and remains Bullish TREND @Hedgeye  

With the Dollar up, some Commodities corrected within their Bullish #Quad3 TREND:

1. CRB Commodities Index corrected -1.5% last week but remains Bullish TREND @Hedgeye  
2. CRB Raw Index reflated another +2.6% last week to +4.1% in the last month and is Bullish TREND @Hedgeye 
3. Oil (WTI) corrected -6.4% after signaling immediate-term TRADE overbought last week but is Bullish TREND
4. Nickel reflated another +3.1% last week to +5.6% in the last month and remains Bullish TREND @Hedgeye  
5. Sugar led gainers +5.6% last week and remains a relatively new Bullish @Hedgeye TREND  

Yep, I was long of Sugar in CANE terms instead of being long “Small Cap Stocks.” That’s primarily a process decision to be long of Commodities instead of super late cycle corporate cost pressures.

What up with Small Caps?

A) Not the Russell 2000 (IWM)
B) Russell 2000 was down -0.2% last week
C) Russell 2000 was down for the 3^rd week in a row

Not to be confused with a core Sector and Factor Exposure Long in #Quad3 (like Tech, XLK, which was up another +2.2% last week to +8.0% in the last month!), Small Caps with #GrowthSlowing are shorts.

Another US Equity Sector Style Short during #Quad3 is Materials (XLB) which were also down -0.2% last week and are -0.1% in the last month. I pay close attention to 1-month returns mainly because The Machine does.

Another great place to be long “stocks” with the US economy in Down Dollar #Quad3 is Emerging Markets:

1. Emerging Market (MSCI) Stocks were up another +0.9 last week and are +8.0% in the last month
2. Russian Stocks (RTSI) ramped another +3.2% last week and are +11.0% in the last month
3. South Korean Stocks popped +2.7% last week and are +7.3% in the last month

South Korea is the 2^nd largest weight in the EM MSCI Index of “stocks.” You don’t have to be long “US Small Caps” alongside US consensus positioning (see CFTC futures & options data) to be making money right now.

South Korea, like Russia, is currently seeing an economic #acceleration in #Quad2. That’s when both real growth and inflation are accelerating, at the same time. That’s not happening in the US economic data.

That’s why both the UST 2yr and 10yr Yields are down “year-to-date” and why Gold was up another +0.5 last week taking its 1-month absolute return to +6.3% and smoking small cap stocks. That’s what happens when US Jobs & GDP are slowing, at the same time.

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:

UST 10yr Yield 1.77-1.93% (bearish)
UST 2yr Yield 1.51-1.62% (bearish)
SPX 3 (bullish)
RUT 1 (neutral)
NASDAQ 8 (bullish)
Energy (XLE) 59.17-61.15 (bullish)
Tech (XLK) 90.85-95.12 (bullish)
VIX 11.99-15.01 (bearish)
USD 95.85-97.41 (bearish)
EUR/USD 1.10-1.12 (bullish)
USD/YEN 107.92-109.98 (bullish)
GBP/USD 1.29-1.32 (bullish)
Oil (WTI) 58.29-64.13 (bullish)
Gold 1 (bullish)
Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer