“I’ve always felt like something of an outsider.”
- Jim Simons
Evidently, there’s nothing wrong with not being in the Old Wall Club. Renaissance Technologies founder, Jim Simons, also says he “never quite felt like a member of the mathematics community either.”
“Simons had been a star cryptologist, had scaled the heights of mathematics, and had built a world-class math department, all by the age of forty…” (The Man Who Solved The Market, pg 41).
While there certainly were days on Wall Street when who you knew helped you know things, in this day and age of modern computing and the daily impact of The Machine, it’s what your #process knows about the data and market signals that’s become the most critical thing.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! For those of you who are new to our risk management #process, on the 1st day of the week we measure and map Global Macro markets on a week-over-week basis within the context of our multi-duration & multi-factor model.
As usual, let’s start with the Global Currency market, which was screaming #Quad4 last week:
- The US Dollar Index ramped +1.3% last week to new 2020 YTD highs and continues to signal Bullish TREND @Hedgeye #Quad4
- EUR/USD corrected -1.3% last week after breaking bad back to Bearish @Hedgeye TREND alongside European Bond Yields
- YEN corrected -1.3% vs. USD last week and remains Bearish TREND @Hedgeye
- GBP/USD dropped a big -2.4% last week moving to Neutral (from Bullish) TREND @Hedgeye
- Aussie Dollar fell another -0.3% vs. USD last week to -5.0% YTD and remains Bearish TREND @Hedgeye
- CNY/USD (Chinese Yuan) dropped -1.3% vs. USD last week to -0.6% YTD and remains Bearish TREND @Hedgeye
While some of your competitors navel gaze at S&P Futures, in points, don’t forget how important the US Dollar is to both the Repo market and Chinese (US Dollar Denominated) Debt. A #StrongDollar is deflationary. Period.
If I have competitors who want to call it disinflation instead of deflation, that’s fine. The ROC (rate of change) in most headline #InflationAccelerating data points will likely have peaked here in JAN/FEB. Global Bond Yields (falling, faster, again) get that.
The Commodities market understands what a #StrongDollar does too:
- CRB Commodities Index was down another -0.1% last week to -8.4% YTD and remains Bearish TREND @Hedgeye
- Oil (WTI) deflated another -2.4% last week to -17.2% YTD and remains Bearish TREND @Hedgeye
- Copper bounced +1.4% last week to -8.7% YTD and remains Bearish TREND @Hedgeye
- Rubber prices collapsed -7.7% last week to -12.8% YTD and remain Bearish TREND @Hedgeye
*Note: I’m only using “year-to-date” (YTD) right now because it’s the duration (1-month) that The Machine cares most on.
Unlike Gold (which is a low-vol, alpha-generating, currency in #Quad4) Rubber is a commodity that can deflate, fast, in US Dollars! Evidently so can the Chinese 10yr Bond Yield which was down -20 basis points last week to -34 basis points YTD (2.81%).
Last week’s Counter @Hedgeye TREND bounce in US Treasury Yields provided an intra-week buying opportunity in both Gold and T-Bonds:
A) UST 2yr Yield was +9 basis points on the week to -17 basis points for 2020 YTD
B) UST 10yr Yield was +8 basis points on the week to -35 basis points for 2020 YTD
But, the Yield Curve compressed by 1 basis point (10s vs. 2s) all the while as it moved back towards inversion (5yr yield trading even with the 2yr UST yield this morning) post another Late Cycle US #JobsSlowing report on Friday.
Oh, I’ve spent too much time and space talking about Global FX, Commodities, and Rates when some of your friends only want to talk about “stocks.” I hear you brothers and sisters, I do stocks, in Quad, Sector Style, and Factor Exposure terms!
A) HIGH BETA stocks had a +4.2% bounce last week but still have negative 1-month price momentum of -1.5%
B) Utilities (XLU) corrected -0.6% last week but remain one of our Top 3 Sector Longs right now at +6.1% YTD
C) Basic Materials (XLB) bounced +4.3% last week but remain an underweight/short for us at -2.2% YTD
When my data and signal driven #process flipped in JAN from bearish to bullish on USD, I flipped from bullish to bearish on both Chinese stocks and EM (Emerging Market) stocks which are down -5.7% and -2.1% for 2020 YTD, respectively.
Either the Fed understands that #Quad4 Risks rise faster as the US Dollar rises or it doesn’t. I’ve always been an outsider to the US Federal Reserve and their establishment linear-econs. And I quite like that.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.49-1.69% (bearish)
UST 2yr Yield 1.32-1.48% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
Utilities (XLU) 67.10-69.66 (bullish)
REITS (VNQ) 93.90-96.22 (bullish)
Consumer Staples (XLP) 62.85-64.71 (bullish)
Shanghai Comp 2 (bearish)
DAX 129 (bullish)
VIX 13.82-18.96 (bullish)
USD 97.39-98.88 (bullish)
EUR/USD 1.09-1.10 (bearish)
USD/YEN 108.21-110.25 (bullish)
GBP/USD 1.28-1.30 (neutral)
Oil (WTI) 48.66-53.90 (bearish)
Nat Gas 1.71-1.95 (bearish)
Gold 1 (bullish)
Copper 2.45-2.64 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
