“The higher the sun ariseth, the less shadow doth he cast.”
- Lao Tzu
Want to get up to speed on some ole school Chinese philosophy ahead of the greatest #BeanDeal in human history? Lao Tzu, or the Tao Te Ching, is 6th century BC old.
In ROC (rate of change) and modern macroeconomic Hedgeye Quad terms, China hasn’t seen the sun rise in 10 straight quarters. That means China’s economy has been mired in either #Quad4 or #Quad3.
Unlike the USA’s long hoped-for ISM report in December (which slowed to a 127 month low), Chinese Exports #accelerated, big time, in December. That means the sun rose into #Quad2!
Back to the Global Macro Grind…
Before you get as excited as some of the Chinese charts have become, just know that we’re still nowcasting #Quad3 Stagflation for China here in Q1 of 2020. Chinese inflation has accelerated to a 6yr high, don’t forget.
That said, these are the tops of the risk management mornings that Quadzilla (Darius Dale) and I wake up for. When the Quads don’t change in China for over 2 years, any change is certainly exciting to talk about.
Here’s the actual Export data that tipped the China model into #Quad2 and Darius’ thoughts on how it relates to the US Cycle:
A) DEC Exports print (+890bps to +7.6% YoY) became the first hard data figure in our China nowcast model to show improvement on a QoQ basis, following improvement across each of the leading soft data metrics in our model
B) That this recovery in external demand occurred in a month where there was not much of a recovery in China’s exports to the US (+840bps to -14.6% YoY) is telling and supports our call that global economy – which peaked 3-6 quarters before the US economy – has inflected off its lows and is likely to leave the US behind for 2 quarters
The other big thing to acknowledge here is that Chinese Stocks front-ran this report (ramping back to Bullish @Hedgeye TREND – that signal is in our daily Risk Range product)… and sold off small (Shanghai Comp -0.3% overnight) on the “news.”
Can China go higher from here?
A) Shanghai Composite Index – yes, with immediate-term upside in my Risk Range to 3125
B) Chinese Consumer Stocks – yes, we already made that call in our Q1 Macro Themes deck
Why bet on a new secular bull in the Chinese Industrial economy when Chinese Consumer Stocks already back-test as LONGS in #Quad3? As you can see in today’s Chart of The Day, the only time to sell the MSCI China Consumer Index is in #Quad4.
Can EM (Emerging Markets) Equities go higher from here?
A) South Korea’s KOSPI – yes, as it recently moved from Bearish to Bullish TREND
B) EEM (MSCI Emerging Markets ETF) – yes, it has a large China Consumer component and is also Bullish TREND
As you already know, there are plenty of EM Equity markets that have started their Down Dollar Phase Transition into #Quad2. In addition to being Long South Korea (and amongst others), my A/B Test (Quads + Signal) is outright bullish on:
- Russia (RSX)
- India (INDA)
- South Africa (EZA)
Can any of these markets go higher from the top-end of my @Hedgeye Risk Ranges?
A) That’s certainly not how I buy things (I buy them on sale when correcting towards the low-end of my range)
B) All of them (EEM, RSX, INDA, and EZA) are signaling immediate-term TRADE #overbought within Bullish TRENDs
But, alongside my Short US Dollar (UUP) and Long Commodities positions, these are all Global Macro Longs that were awesome shorts when the sun wasn’t rising at the top of the EM/China Consumer risk management morning!
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.78-1.92% (bearish)
SPX 3 (bullish)
RUT 1 (neutral)
Energy (XLE) 59.21-61.13 (bullish)
Tech (XLK) 91.16-95.83 (bullish)
Shanghai Comp 3048-3125 (bullish)
VIX 11.85-14.93 (bearish)
USD 95.90-97.45 (bearish)
Oil (WTI) 57.48-64.30 (bullish)
Gold 1 (bullish)
Copper 2.79-2.88 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
