A beauty +5% intraday rip for Hedgeye Jedi Josh Steiner. NSM now moves to immediate-term TRADE overbought (within Steiner’s intermediate-term bullish TREND). We’re booking it. Profits are a good thing.
Takeaway: A look at some of Keith's top tweets today.
"Best month in Hedgeye history - big knucks to the fans and foes from New Haven, CT"
"You know Hedgeye is a cult right? We are crazy - we are accountable to our opinions and everything"
"Managing the risk of the markets range works in many ways; stay with the bullish bias until everyone capitulates"
"Either I'll be really wrong here, or consensus stock bears/gold bulls will be right - game on"
"Pundits and English majors remain royally confused as to why buying each dip keeps working"
Takeaway: HOT and H remain our favorite names in the strong hotel sector
Q2 is good but Q3 should be even better
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Takeaway: We remain strong buyers on the dips. The trend is your friend on the long US equity side.
We’ve been banging the People Aren’t Bullish Enough drum for a while now. We're doing that for a reason.
People haven’t been, and still aren’t long enough. That’s the glaring bottom line right now. Look, the numbers aren’t lying. US growth continues to surprise on the upside. It’s that simple. Just look at the numbers.
This morning’s US jobless claims number fits this trend like a glove. Sure, it was up slightly week-over-week, but don’t miss the forest for the trees folks. Non-seasonally adjusted claims were better by 8.2% vs last year, as compared with the 8.0% improvement in the previous week. The labor market is improving and it is doing so at an accelerating rate. The trend is your friend here.
The bears are waiting for the boogeyman. Look, we'll be the first to tell you that there are plenty of things to short out there. We’ll short JGBs and the Weimar Nikkei until the cows come home. We’ve been very clear on that. But the S&P 500 isn’t one of them.
We remain strong buyers on the dips. The trend is your friend on the long US equity side.
Takeaway: The TREND in the economic data continues to confirm our Research and Risk Management views on improving domestic growth.
With the TREND in the economic data continuing to confirm our Research and Risk Management views, the Hedgeye Redundancy Department has been at productive capacity since late November repeatedly highlighting the key factors at work supporting the ongoing improvement in the domestic growth outlook. We’ll keep it tight here in highlighting May’s macro manifestations of domestic #GrowthAccelerating.
First, to be clear, we don’t like everything at every price but, on balance, with the $USD still in bullish formation (Bullish TRADE, TREND, TAIL), commodity deflation persisting, and Labor, Housing & Confidence (and to a lesser extent Credit and now Real Earnings) working reflexively, we continue to like the Dollar and domestic, consumption oriented equities on the long side and Gold, Yen, and the broader commodity basket on the short side.
INITIAL CLAIMS: This morning’s Department of Labor data showed NSA claims accelerated to -8.3% y/y growth compared with -8.0% improvement the prior week and -2% two weeks prior. So, not only is the labor market improving, it is doing so at an accelerating rate at present. The organic improvement in the underlying labor market YTD has bucked the trend of the past three years, continuing to overwhelm the negative March-to-August seasonal distortion and any sequestration related drag.
Source: Hedgeye Financials
REAL EARNINGS: Mirroring the broader TREND in nearly every macro chart, real earnings growth troughed and inflected positively back in November. The Trend on both a 1Y and 2Y basis remains one of acceleration and with modest comps and persistent commodity deflation, expectations for sustained positive growth appear reasonable.
We would note that a continued rise in temp and part-time employment growth and corporate attempts to manage worker hours under the 30-hour threshold dictated under Obamacare is a trend we’re monitoring and one which, while positive for employment growth broadly, may serve as a drag to hours worked and weekly earnings growth as we move towards ACA implementation deadlines.
$USD/Commodities: The Dollar remains in bullish formation and with the domestic growth outlook improving on both an absolute and relative basis, deficit spending declining, and monetary policy more hawkish on the margin, we continue to think the dollar holds further upside.
With USD correlations to the SPX (+) and Gold/Commodities (-) remaining strong across durations, #StrongDollar, long stocks, short commodities remains the baseline macro strategy playbook. *Note: Keith bought the dollar via UUP this morning in our Real-time Alerts
CONFIDENCE: The Bloomberg Consumer Comfort Index, Univ. of Michigan Consumer Confidence, and the Conference Board Consumer Confidence Index all accelerated in May while making fresh 5Y highs. As we have highlighted, economic activity relationships with confidence have completely broken down over the last 4 years but, historically, consumer confidence has been a good-to-very good leading indicator for economic activity metrics such as new orders, consumer spending, and money velocity. A sustained breakout of the trough channel we have been in since 2008 may augur a re-tightening in historical confidence-econ correlations.
HOUSING: Purchase Applications continue to accelerate in 2q13TD despite the recent back-up in rates, the NAHB (Home Builder) HMI advanced in May, Existing Home Sales remain strong and the latest New Home Sales, Pending Home Sales and Home Price (FHFA & Case-Shiller) data all accelerated sequentially.
Admittedly, the comps on pricing continue to steepen and a significant, expedited back-up in rates may prove a marginal headwind but we continue to view the housing recovery as a multi-year story and wouldn’t view a move from the current low-double digit parabolic recovery to steady high-single digit HPA growth as a material negative.
Mortgage Application and Pending Home Sales data suggests forward housing activity will remain healthy and, over the next few years, we continue to believe a move towards 2M housing starts represents a high probability scenario.
Yield Spread (10’s-2’s): In so much as a widening in the yield spread = expectations for QE Taper = Improving Domestic Macro is a transitive relationship, the recent expansion in the yield spread would serve as positive confirmation of an improving domestic growth outlook. The positive price divergence from financials (+4%) MTD, negative divergence from Utilities (-8.7%) MTD and ongoing outperformance for Consumer Discretionary would seemingly concur as well.
Christian B. Drake
Takeaway: While we continue to generally shun EM exposure, patience is poised to provide investors with a good opportunity on the long side in Brazil.
Down -2.5%, the Bovespa Index was hammered yesterday (closed today) on a +50bps rate hike that generally surprised the bulk of consensus expectations of a +25bps hike (per 38 of 57 economists polled by Bloomberg). After the cut, the 1Y OIS market is now pricing in just one more +25bps hike over the NTM, which may come as soon as the JUL 10 meeting.
This subdued outlook for incremental tightening is in line with our expectations given our views on global inflation dynamics (HERE and HERE) and that the hawkish trend in the leading IGP-M CPI already inflected in MAR with the benchmark IPCA CPI following suit in APR.
As we mentioned a few months ago, BCB was behind the curve with respect to inflation expectations, but their recent hawkishness has their credibility back on track. Moreover, Brazil’s 2H13 GIP outlook looks as robust as any country across Asia or Latin America.
As we’ve said all along, due to poor policy implementation and commodity deflation, patient international investors were going to get a chance to invest in Brazil on sale. In that vein, the next rate hike is likely to be the final catalyst for getting long the consumption side of the Brazilian economy (BRAQ).
All that being said, we don’t think the coast is clear just yet. Specifically, Finance Minister Guido Mantega’s most recent negative jawboning of the BRL (down -4.9% MoM) is still cause for alarm, given that Big Government Intervention in the FX market and in the Brazilian capital account has been one of the primary factors for the demonstrable underperformance of Brazilian equities and the BRL on a TTM basis.
All told, while we continue to generally shun emerging market exposure, a little more patience is poised to provide investors with a good opportunity on the long side in Brazil – particularly those investors that must remain allocated to the EM space.
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