“I want to be thoroughly used up when I die, for the harder I work the more I live.”
- George Bernard Shaw
I think the Irish playwright and polemicist was talking about #Quad2 in Q2. By the time this economic Quad is said and done, wow will we have looked back on some wonderful buying opportunities.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! Steinbomber, Dr. Drake, Drago, DJ, and I will be hosting our Mid Quarter Update call LIVE at 10AM ET @HedgeyeTV. Ping our team at for access to our Macro Team’s content.
As always on the 1st day of the week, we’re measuring and mapping The ROCs (rates of change) of everything that ticks in Global Macro markets. Let’s start with the Global Currency market which is screaming #Quad2 for both Europe and the USA:
- US Dollar Index was +0.1% last week (not much of a bounce given the Equity panic) and remains Bearish TREND
- EUR/USD corrected a small -0.2% last week and remains Bullish on both our TRADE and TREND durations
- Canadian Dollar appreciated another +0.3% vs. USD to +3.5% in the last month alone = Bullish TRADE and TREND
- GBP/USD appreciated another +0.8% vs. USD to +2.3% in the last month = Bullish TRADE and TREND
- Japanese Yen corrected another -0.7% vs. USD to -0.4% in the last month and is still Bearish @Hedgeye TREND
Why are both the Yen and Nikkei now signaling Bearish @Hedgeye TREND? I have some ideas but no one really knows anything for sure. What we do need to know is WHEN these TRADE and TREND signals breakout or breakdown.
If you need a narrative, I can definitely tell you a few about Canadians (and why the Loonie is breaking out to the upside) and Commodities, but that’s more for late night at the fire pit.
Ex-Oil & Gas, Commodities finally corrected from their recent Cycle Highs last week:
- Commodities (CRB Index) corrected -1.8% last week to a +5.6% inflation in the last month and remain Bullish TREND
- Oil (WTI) inflated another +0.7% last week to +3.4% and +11.6% in the last 1 and 3 months, respectively
- Copper corrected -2.0% last week to +12.6% and +23.1% in the last 1 and 3 months, respectively
- Corn corrected -12.1% last week to +11.1% and +22.6% in the last 1 and 3 months, respectively
- Lumber corrected -16.8% last week to +29.7% and +80.5% in the last 1 and 3 months, respectively
- Lean Hogs corrected -4.0% last week to +3.4% and +18.7% in the last 1 and 3 months, respectively
Respectively speaking, isn’t it funny that everyone and their sister’s dog was freaking out about inflation at last week’s SPY lows (it was even on the cover of Barron’s, ha!) as some of the biggest inflations out there were dis-inflating?
I’ll review the difference between DEFLATION (i.e. our #Quad4 Deflation call from JAN 30, 2020) and DISINFLATING epic INFLATION on the Mid Quarter Update call. Our updated proprietary nowcasts for pending inflation prints are epic too!
What was also epic last week was yet another episodic-and-non-TRENDING spike in US Equity Volatility:
A) Front-month VIX was +18% on the week but is down -6% in the last 3 months (that’s the TREND)
B) SPY corrected -1.4% on the week to +6.1% in the last 3 months and remains Bullish @Hedgeye TREND
C) Financials (XLF) were actually UP +0.3% on the week to +7.7% and +20.2% in the last 1 and 3 months, respectively
It’s all about respect this morning. Respecting The Cycle has kept you riding the 4 Horsemen (XLF, XLB, XLE, and XLI). Basic Materials (XLB) were actually UP +0.1% on the “market down week” too to +8.9% in the last month alone.
As with everything in your life, you have a choice. Being long those 4 US Equity Sector Styles is just one of your core #Quad2 Global Asset Allocations. Commodities have been a big one, obviously. Being long European stocks has been stealth too:
A) Germany’s DAX was UP +0.1% last week to +1.4% and +9.7% in the last 1 and 3 months, respectively
B) Italy’s MIB index was UP +0.6% last week to +0.8% and +5.8% in the last 1 and 3 months, respectively
In the words of the greatest President in the history of his own mind, “believe me”, if a hedge fund is UP in both the last 1 and 3 months, respectively, they’re going to get our profession’s respect.
With the Italian 10yr Yield up another +2 basis points to +34 basis points in the last month alone, European #Quad2 is getting the market’s respect again this morning.
Remember, in #Quad2, it’s Dollar Down, Rates Up, (certain) Stocks and their Sectors Up. That portfolio ain’t dead yet.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.57-1.71% (bullish)
SPX 4066-4257 (bullish)
RUT 2132-2295 (bullish)
NASDAQ 12,978-13,890 (neutral)
Energy (XLE) 50.70-54.85 (bullish)
Financials (XLF) 36.41-38.37 (bullish)
DAX 15052-15567 (bullish)
VIX 14.31-23.28 (bearish)
USD 89.68-91.12 (bearish)
EUR/USD 1.201-1.221 (bullish)
USD/YEN 108.33-109.95 (bullish)
GBP/USD 1.391-1.421 (bullish)
CAD/USD 0.81-0.83 (bullish)
Oil (WTI) 63.80-66.61 (bullish)
Nat Gas 2.88-3.08 (bullish)
Copper 4.51-4.85 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
