Spyglass Macro 15aug22
Spyglass Macro 15aug22
Spyglass Macro 15aug22
What to focus on in Global Macro for the week of August 15th, 2022
There were a number of Fed speakers last week and the message was basically as follows:
Source: @VincentDeluard
Of course, there are other factors, and arguably they are more important now than they have
been over the last few decades.
Besides energy, shelter and food have been headline inflation's other two big drivers. Shelter, in
particular, is seen as a lagging component, but a sticky one.
According to Prometheus Research… “the shelter component is now in the driver’s seat and
accounts for 1.8% growth of the 8.45% headline yearly number. 5.5% yearly growth comes from
the top 5 areas.”
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With real estate starting to soften, the shelter component should eventually follow, but again, it
is lagging and not expected to peak until the end of the year.
Shelter and food are expected to continue to hold up inflation relative to where it would
otherwise be.
Last month was a good example.
Over the last 15 years or so, US inflation has tended to lead European inflation by roughly 3-
months.
Having said that, this time really is likely to be a bit different given the European energy crisis.
Here is an interesting chart that highlights the larger contribution of energy to Euro area
inflation.
With European NatGas still near the highs, the recent move in electricity prices in France and
Germany has been eye-watering.
Markets – Given the lack of clarity for me in the fundamental narrative these days, I have been
very focused on the charts. The IWM/SPY chart is a compelling chart with good risk/reward.
Having said that, I’m not sure I understand the drivers or am comfortable with the implications.
The DXY had a nice break lower on the weak CPI print. 107 is the line in the sand for bears.
With war on the border of Europe, a heat wave, wildfires, navigable rivers drying out, and
German & French electricity up 10x off the 2020 lows, it has been hard for EUR to get much
upside momentum. Watch 1.0400 above.
The AUD on the other hand, found its legs last week. I like a run at .7250+ initially.
The AUD outperformance has brought my bearish GBPAUD and EURAUD views to life. These are
big breaks.
I continue to like both BRL and the BOVESPA. However, I think you can tighten the stop in
USDBRL now and I would have taken off over 50% of the EWZ given the +20% move.
Full QT is coming in September when they ramp up the roll-offs. Also, larger than expected tax
receipts in April has meant lower issuance than normal from the Treasury. What will full QT and
increased issuance mean for Treasuries? The chart is a mess now and Thursday’s jump in long-
end yields did some damage to the lower yield thesis. The market has been embracing a higher
probability of a softer than expected landing. We will see if it lasts.
Gold has been holding in well and peaking through resistance after having held the bottom of
the range. Softer yields overall, and a weaker USD have helped. It is worth watching here but I
don’t have strong conviction here, nor is the location great.
Industrial Production
CPI (Jul)
Wednesday
CPI, PPI, and Retail Sales (Jul)
8/17/2022
GDP Q2 PREL
FOMC Minutes
Thursday
HICP (Jul)
8/18/2022
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