“May you live in interesting times”
- Chinese Curse
While the apocryphal “Chinese curse”, which may or may not be of actual Chinese origin is, facially, a blessing, it’s universally employed ironically …. A kind of verbal voodoo with “interesting” serving as a euphemism for “tumultuous” or “chaotic”.
Across multiple dimensions, from the purported origin to geopolitical undertones to the nexus of COVID-19 with social and financial market dislocations, it’s a quote uniquely befitting of the times.
Back to the Global Macro Grind…..
In an epic since-athon of market milestones which has seen the best & worst since “ever”/”1929”/”GFC” reported in successive fashion and liberally used to characterize market and macro fundamental turbulence over the past month, the onslaught of “interesting” has been interminable.
Here's a quick selection of “since”, just over the past few hours:
- French Business Confidence = - 10.3pts to 94.7 in MAR = the worst print since MAR ’15 and largest MoM decline ever
- German Business Confidence = -5.6pts to 2.7 in APR - the worst print since APR ’09 and largest MoM decline ever
- Canada CFIB Small Business Sentiment = largest sequential drop ever to lowest reading ever
- Mortgage Purchase Applications = -29.4% W/W and largest sequential contraction since 2009
And the “interesting” offensive will only escalate as it storms the domestic labor beachhead this morning.
This has been well covered and we’ve been detailing the state-level announcements since last week but with Initial Claims set to print between 1.5-4.5 million, the job loss blitz is really all that matters, no matter how ubiquitous the coverage has been:
- Consensus is at 1.5 million, which is probably low.
- Regardless of where it prints exactly, the employment loss will be catastrophic and multiples of anything “since ever”.
- At the median of the estimated range, the number of unemployed would rise by ~60% and push the Unemployment Rate up ~2 percentage points … which, again, would = the most “since ever”.
- As the Chart of the Day illustrates, historically, when claims increases by >100K, consumption growth always slows …. and then slows again in the subsequent quarter(s). Same for Investment.
…. “But the Dow had its best day since 1929”
The notion that identifying/convictedly quantifying both the direct and network/derivative effects associated with current conditions is a tractable analytical exercise is laughable. As is the notion that the market can just passively look past it all before it even actually happens.
As we quipped last week:
“There are only two kinds of analysts in the world, those who have no real idea how March-June will specifically play out, and liars … is how the saying goes, I think.”
Maybe the game is moving too fast for consensus to adjust but the current expectation of a shallow -1.9% Y/Y decline in earnings in 2Q20 followed by an unimpeded, blue-sky re-acceleration in perfect V-Shaped recovery fashion is “interesting”, to say the least.
I’m actually just going to leave it there and wait for the “interesting” to hit the tape … or the fan (as the case will be) … at 8:30.
We’ll be contextualizing this mornings data (and everything global macro), discussing our outlook and detailing how to effectively risk manage the chop and acute, cross-asset vol clustering in markets on our 2Q20 Macro Themes call this morning at 11am.
Below are the Top 3 Themes for 2Q. If you are an institutional subscriber and need access, please email :
- Deep #Quad4: Our process for determining the depth and duration of the pending recession leaves no room for guesswork, unlike the deterministic forecasts of economists who never saw Quad 4 in Q2 coming to begin with. It starts and ends with the measuring and mapping of the data. In the presentation, we’ll provide a detailed guide to help investors stochastically navigate the crisis in a repeatable and robust manner.
- Earnings #Recession: Sell-side consensus still anticipates decent S&P 500 EPS growth this year, accelerating from down YoY in 1H20E to up +6% by 4Q20E. We’ll continue to take the other side of the consensus 2020 earnings recovery narrative and detail why in the presentation.
- Cross Asset Class #Volatility: Our process for determining the depth and duration of this bear market doesn’t anchor on valuation opinions, nor does it require hope, prayer – or tears for that matter. It starts and ends with the measuring and mapping of volatility. In the presentation, we’ll contextualize the acute clustering in volatility, detail the forward-looking implications for asset markets, as well as offer key risk management levels for what would signal to us that Mr. Market is finally done pricing in Deep Quad 4.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.63-1.16% (bearish)
UST 2yr Yield 0.23-0.56% (bearish)
SPX 2154-2601 (bearish)
RUT (bearish)
NASDAQ 6 (bearish)
Utilities (XLU) 43.60-53.90 (bearish)
REITS (VNQ) 52.03-68.50 (bearish)
Consumer Staples (XLP) 47.76-52.71 (bearish)
Tech (XLK) 67.42-81.93 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 154 (bearish)
DAX 8086-9993 (bearish)
VIX 50.43-86.55 (bullish)
USD 97.10-105.26 (bullish)
Best of luck out there today,
Christian B. Drake
Macro Analyst
