Awaiting The Employment Number

Client Talking Points

YEN

Japanese equities have loved a weak Yen in as much as the SPX has loved #StrongDollar and this week was rock solid for the USD/YEN cross as US Economic data for July (jobless claims 326k and ISM 55.4 yesterday) smoked the US #GrowthSlowing bears out of their holes - again.  Yesterday was a strong dollar, strong stocks day in the U.S. and, on a TREND duration, the Dollar-SP500 correlation remains strong at +0.76.   The Nikkei matched the U.S.’s performance and raised it one - closing +3.3% on the session and now up +40.5% year-to-date.   

EUROPE

What matters in Macro happens on the margin and, on the margin, the European data has been better.  Both the DAX and FTSE are back in Bullish Formations (Bullish across TRADE, TREND, & TAIL durations) but signaling immediate-term TRADE overbought here this morning.  With domestic, pro-growth leverage (XLF, XLY, etc) overbought yesterday also, there is a growing list of (very short-term) mean reversion factors that could take US and European stocks down if this jobs print is either too hot or too cold.

UST 10YR

What is too hot of an employment number? A print north of 200k in payrolls could easily push the yield on 10Y treasuries to the 2.8-2.9% range and, in the process, freak out consensus which isn’t positioned for a redo of June. What number would be too cold is easier  – a jobs miss this morning would be the 1st in 6 months, and the bears need a bone here.  Oh yeah….and #RatesRising is crushing Gold again too.  We covered our gold short yesterday and would not be buyers of weakness.   

Asset Allocation

CASH 36% US EQUITIES 24%
INTL EQUITIES 16% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

Securities have multi-standard deviation events though, so you need a real research team to have your back on that

@KeithMcCullough

 

QUOTE OF THE DAY

"The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

-Thomas Sowell

STAT OF THE DAY

Today is the 16th consecutive day where all 9 sectors in Hedgeye's S&P Sector model are bullish on both TRADE and TREND durations.


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