The Mother of All #Quad2s

“Rising at 5 AM truly is The Mother of All Routines.”
- Robin Sharma 

I don’t know how many more Macro Mondays @Hedgeye I have left where the week-over-week review of what happened in Global Macro in the prior week is as glaringly obvious being #Quad2 in Q2.

What I do know is that plenty of people have been trying to call the #Quad2 top the entire way up. That’s not a process. Tops and bottoms begin to reveal themselves before 5 AM in the morning. That’s why I get up at 4:30 AM.

“The way you begin your day determines the extent of focus, energy, excitement and excellence you bring to it. Each early morning is a page in the story that becomes your legacy.” -The 5 AM Club, pg 36

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where we measure and map The ROCs (rates of change) of everything that ticks in Global Macro markets. Remember, calling tops and bottoms is a process, not a valuation point.

As usual, let’s start with what happened in the Global Currency market last week:

1. USD Dollar Index was down another -1.2% and down for the 4^th week in the last 5, reiterating a TRENDING #Quad2
2. EUR/USD was up another +1.2% last week to +2.5% in the last month = Bullish on both TRADE and TREND durations
3. Canadian Dollar was up another +1.3% last week to +3.9% in the last month = Bullish TRADE and TREND as well
4. GBP/USD was up another +1.2% last week to +1.8% in the last month = Bullish TRADE and TREND
5. Brazilian Real appreciated +3.8% vs. USD last week to +7.2% in the last month (that’s a BIG Bullish TREND move)
6. Russian Ruble appreciated +2.1% vs. USD last week to +4.3% in the last month = Bullish TRADE and TREND

Obviously if you do Global Macro professionally, missing major macro FX moves like this probably means you’ll be better off selling milkshakes than marketing theories about what markets should do.

Both markets and economic data do what they do. Get The Economic Quad right, you’ll get the US Dollar and FX right.

Get the Dollar right and you’ll also get Commodities and The ROC of INFLATION right:

1. Commodities (CRB Index) inflated another +3.6% last week to +14.1% in the last 3 months
2. Oil (WTI) inflated another +2.1% last week to +15.9% in the last 3 months
3. Copper inflated another +6.3% last week to +31.0% in the last 3 months
4. Corn inflated another +8.8% last week to +36.6% in the last 3 months
5. Aluminum inflated another +5.6% last week to +25.0% in the last 3 months
6. Wheat inflated another +3.7% last week to +20.5% in the last 3 months

We use “the last 3 months” in our multi-factor, multi-duration TRADE/TREND/TAIL #process because “3 months or more” @Hedgeye is The Cycle’s TREND. We’ve been bearish on USD and Bullish on Commodities since JUN of 2020.

Whoever you compete with that missed this FX and Commodities move likely missed the flow-through on this epic US Equity Sector Style move:

1. Energy (XLE) inflated another +8.6% last week to +26.0% in the last 3 months
2. Basic Materials (XLB) inflated another +5.8% last week to +19.5% in the last 3 months
3. Industrials (XLI) inflated another +3.4% last week to +18.4% in the last 3 months
4. Financials (XLF) inflated another +4.2% last week to +22.3% in the last 3 months

This obviously isn’t “mid-cycle” anything. These are The 4 Horseman (Sector Styles) riding in The Mother of All #Quad2s!

It’s still Early Cycle in places like Europe and both the US Employment and Inventory Cycles. On the European side we remain bullish on both long-term rates and Equities:

A) German Stocks (DAX) inflated another +1.7% last week to +9.6% in the last 3 months
B) Russian Stocks (RTSI) inflated another +6.2% last week to +10.2% in the last 3 months

Doing Global Macro includes doing Global Macro. Reading into a “chart” of the NASDAQ is only going to get you so far. Hopefully that charting didn’t get you sucked into selling last week’s low in Tech or Semis (SMH).

Oh, and on that point I slipped in there on the US Inventory & Employment Cycles being “early”:

A) INVENTORY: Today’s Chart of The Day (slide 31 in our Global Macro deck) is obviously Early Cycle
B) EMPLOYMENT: Friday’s jobs report was an obvious reminder that its still very early in the jobs recovery

That said, when measuring and mapping it like we do (in year-over-year rate of change terms), Friday’s NFP number #accelerated to +11% y/y (year-over-year) in APR vs. -4.5% in MAR and -6.0% in OCT.

The Mother of All CPI and US Jobs Reports are still pending. Friday’s intraday reversal in rates told you that too.

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

UST 10yr Yield 1.56-1.71% (bullish)
SPX 4151-4255 (bullish)
RUT 2 (bullish)
NASDAQ 13,460-14,245 (bullish)
Tech (XLK) 135.41-144.10 (bullish)
Energy (XLE) 49.08-55.11 (bullish)
Financials (XLF) 35.78-37.99 (bullish)
DAX 15004-15476 (bullish)
VIX 15.41-19.85 (bearish)
USD 90.09-91.46 (bearish)
EUR/USD 1.199-1.219 (bullish)
GBP/USD 1.382-1.410 (bullish)
CAD/USD 0.80-0.83 (bullish)
Oil (WTI) 62.96-66.38 (bullish)
Gold 1 (bearish)
Copper 4.53-4.90 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer