#Quad2 Inflation Continues

“You can be in the storm, but don’t let the storm get in you.”
- Joel Osteen 

I’m in Austin, Texas this morning. Don’t ask why. All that matters is I’m here pushing through it with electricity and hot water. Thank God, because plenty of The People I saw out there in the storm yesterday weren’t so fortunate.

If you have the means to help those in need of food and shelter right now, The People need you. Like many Macro storms, they happen slowly then all at once. Many Americans in the Southeast couldn’t have prepared for this.

Now, with #InflationAcccelerating to new Cycle Highs, we need to proactively prepare for what’s going to happen next.

Back to the Global Macro Grind…

Welcome to Macro Tuesday @Hedgeye after quite the long weekend in America. For those of you who are new to our Macro measuring & mapping #process, welcome. I’ll spend the rest of the note reviewing last week’s macro moves.

Let’s start with the Global Currency market which continues to signal Global #Quad2:

1. US Dollar resumed its TRENDING decline, down -0.6% last week, and down -2.7% in the last 3 months
2. EUR/USD was up another +0.6% last week taking its 3-month appreciation to +2.7% = Bullish TREND
3. Canadian Dollar appreciated another +0.6% vs. USD and is +3.6% in the last 3 months = Bullish TREND
4. GBP/USD was up another +0.8% last week taking its 3-month appreciation to +5.6% = Bullish TREND
5. Argentina’s Peso was down -0.9% vs. USD last week and is down -10.3% in the last 3 months
6. Aussie Dollar was up another +1.1% vs. USD last week and is +7.3% in the last 3 months

No, The American People don’t want what The People of Argentina have endured from a Currency Devaluation perspective. It makes the poor, poorer, in real cost of living terms, when they can afford it the least.

Pre Texas storms, rolling blackouts, etc. this is what the cost of real things (Commodities) did last week:

1. CRB Commodities Index inflated another +2.1% last week to a new Cycle High = +21.1% in the last 3-months
2. Oil (WTI) inflated another +4.6% last week to +41.4% in the last 3-months
3. Copper inflated another +4.5% last week to +20.2% in the last 3-months
4. Lumber inflated another +7.3% last week to +78.4% in the last 3-months
5. Cotton inflated another +5.5% last week to +23.9% in the last 3-months

You’d have to be completely Macro Unaware to not see #InflationAccelerating at this point.

Especially with CNN and Fox storm coverage, it will be really easy for those seeking narratives to understand the pending #Quad2 inflation numbers.

The Bond Market, as usual, gets it:

A) UST 10yr Yield was up another +4 basis points to a new Cycle High of 1.21% last week
B) UST 10yr Breakeven was up another +3 basis points to a new Cycle High of 2.23% last week
C) US High Yield OAS Spread was down another -10 basis points to a new Cycle Low of 3.23%

Within the context of the @Hedgeye TREND (i.e. 3-months or more) that means the Yield Curve has STEEPENED +39 basis points in the last 3-months alone with High Yield Spread collapsing -112 basis points.

Again, you’d have to be willfully blind and/or marketing a Long Only Gold fund to not see #InflationAccelerating now.

How about “stah-ks”? Oh, don’t you worry, from a Sector & Factor Exposure perspective, the stock market gets it too:

A) Energy Stocks (XLE) inflated another +5.0% last week to +36.6% in the last 3-months
B) Utilities (XLU) deflated another -1.5% last week to -4.3% in the last 3-months

Alongside the weekly ramps in HIGH BETA, HIGH SHORT INTEREST, and GROWTH (Tech, XLK, inflating another +2.4% last week), #Quad2 is very obvious in the USA right now. It’s obvious, in Global Equities, hitting new Cycle Highs too.

Immediate-term @Hedgeye Risk Range with TREND signal in brackets:

UST 10yr Yield 1.12-1.26% (bullish)
SPX 3 (bullish)
RUT 2 (bullish)
NASDAQ 13,540-14,232 (bullish)
Tech (XLK) 133.13-139.61 (bullish)
Energy (XLE) 40.22-46.37 (bullish)
Utilities (XLU) 62.02-63.75 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 281 (bullish)
DAX 130 (bullish)
VIX 17.92-24.65 (bearish)
USD 89.83-91.30 (bearish)
EUR/USD 1.197-1.219 (bullish)
GBP/USD 1.369-1.395 (bullish)
CAD/USD 0.77-0.79 (bullish)
Oil (WTI) 54.52-61.30 (bullish)
Nat Gas 2.80-3.11 (bullish)
Gold 1 (bearish)
Copper 3.63-3.88 (bullish)
Silver 26.18-28.53 (bullish)
Bitcoin 41,917-51,688 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer