“Non-Euclidean geometry has everything to do with the universe we live in.”
- Richard Panek
Weekends get weird if I do all of my week-over-week weekend analysis, then read Old Wall “research” headlines. Never mind Euclidean geometry and its linear assumptions, some of these people are still writing about letters of the alphabet!
I get it. Lots of people need to make this as simple as a “shape” while making the complexity of central-market-planning as creative as the universe may have seemed pre-Newton. But can’t consensus be a little more precise about The Cycle already?
That said, “precision is what Newton’s theory made possible. Precision is what Newton’s theory demanded. But the precision in Newton’s theory wasn’t precise enough, as Einstein had begun to suspect.” -The Trouble With Gravity, pg 157
Back to the Global Macro Grind…
Welcome to ground hog day and another Macro Monday @Hedgeye where we measure and map last week’s Global Macro market moves, comprehensively, within a non-Euclidean lens of our Full Investing Cycle risk management #process.
Let’s start with the Global Currency market, which continues to signal Deep #Quad4 economic gravity here in Q2:
- US Dollar Index was up another +0.6% last week to +4.1% YTD and remains Bullish TREND @Hedgeye
- EUR/USD fell another -0.5% last week to -3.5% YTD and remains Bearish TREND @Hedgeye
- Yen was flat last week vs. USD at +1.1% YTD and remains Neutral TREND @Hedgeye
- GBP/USD dropped another -1.1% last week to -6.7% YTD and remains Bearish TREND @Hedgeye
- Brazilian Real continued to crash, down another -6.4% last week to -28.1% YTD vs. USD = Bearish TREND @Hedgeye
- South African Rand’s crash continued, down -1.2% last week to -26.5% YTD vs. USD = Bearish TREND @Hedgeye
Yep, a “V-shaped recovery” isn’t being “priced in” to the FX market (or the US Dollar would be breaking down), so maybe we should just ignore that and talk about US story “stocks”?
Uh, no. While it gets no air-time from those who have been bullish on Emerging Market “stocks”, we’ll give last week’s continued #StrongDollar Crash of 2020 in EM its due:
A) Emerging Market Stocks (MSCI Index) were down another -2.4% last week to -21.1% YTD
B) EM Latin America (MSCI) Equities got crushed for a -8.9% loss last week taking their crash to -48.5% YTD
And, if you have friends whose pie-chart Asset Allocation to “stocks” globally, included what were allegedly “cheap” European Equities:
A) EuroStoxx600 was down another -1.2% last week to -21.6% YTD and remains Bearish @Hedgeye TREND since early 2018
B) Spain’s stock market dropped another -3.8% last week taking its crash to -30.7% YTD (Bearish TREND @Hedgeye since 2017)
No worries, I was eventually going to get to the uniquely US Equity market FOMO:
A) SP500 was down -1.3% last week to -12.2% YTD and remains Bearish TREND @Hedgeye (down for the 5th week in 8)
B) Energy Stocks (XLE) were the only Sector Style that was up on the week at +2.0% (and remain core #Quad4 Shorts)
With Oil (WTI) down -14% here pre-open, I doubt people will chase that Counter @Hedgeye TREND bounce in either Energy Stocks (XLE) or in Commodities, as an asset class (which are also core #Quad4 Shorts):
A) Commodities (CRB Index) deflated another -8.9% last week taking their Crash of 2020 to -39.3% YTD
B) Oil (WTI) crashed another -32.3% last week taking its Crash of 2020 to -71.5% YTD
Yeah, I know “stocks are only down -12.2%” this year… and that’s “not that bad” (worst return since 2008)… unless you were long US Dollars, Treasuries, and Gold instead! Gold was actually UP +2.2% last week to +13.1% YTD.
Again, I’m sure all people were (and are) long in their retirement accounts is the NASDAQ (also down -12.1% from its #Quad3 cycle peak in FEB), so all of this week-over-week analysis and signaling of non-linear economic and market risk doesn’t matter if the Fed says so.
In other gravitational news, USA’s High Yield Bonds had another tough week with HY OAS Credit Spread #widening another +70 basis points last week to +775bps over. Being long the Long Bond (TLT) was a much better place for retirement accounts with the 10yr Yield down, again.
As we’ve explained, multiple times, throughout The Cycle: Fed “liquidity” doesn’t equate to corporate solvency. Macro markets get that:
A) HIGH DEBT companies in the SP500 lost another -2.3% of their perceived “value” last week
B) REITS (VNQ) and Financials (XLF) were down another -4.4% and -2.9%, respectively, week over week
Reality is that a lot of retirees are long all of these super-late-cycle Equity & Credit exposures and they’ve lost a lot more than “12%” this year. While it’s “not 2008”, Financials (XLF) are down -29.4% YTD, alone. That has everything to do with the gravity of the universe we live in.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.53-0.73% (bearish)
SPX 2 (bearish)
RUT 1170-1261 (bearish)
NASDAQ 8196-8748 (neutral)
Consumer Staples (XLP) 57.12-60.95 (bullish)
Healthcare (XLV) 94.22-102.01 (bullish)
Financials (XLF) 19.99-22.88 (bearish)
DAX 10108-10775 (bearish)
VIX 34.22-47.27 (bullish)
USD 99.00-101.17 (bullish)
EUR/USD 1.07-1.09 (bearish)
GBP/USD 1.22-1.25 (bearish)
Oil (WTI) 10.01-18.87 (bearish)
Gold 1681--1796 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
