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Staying Long the British Pound!

Long GBP/USD (via the etf FXB)

 

Our bullish call on the British Pound remains, an anchor of our Q4 2013 Macro theme of #EuroBulls presented on 10/11/13.  (Click here for our previous note “Get Long the Pound”)

 

We’re buyers of the cross above our TREND support line of $1.58 and long term TAIL support line of $1.56.  We could see the cross heading to the $1.65 - $1.70 range over the intermediate term. 

 

Staying Long the British Pound! - vv. pound

 

In short, we expect currency wars to devalue the USD and EUR, and expect the British Pound to be the relative winner across both crosses. Here are some updated developments since the ECB unexpectedly decided last Thursday (11/7) to cut the main interest rate by 25bps to 0.25% that we think will boost our #PoundBullish call:

  • Continued signs that Bernanke/Yellen will burn the Greenback via delaying the call to taper (likely pushed out to March 2014); a very dovish Q&A from Yellen today (11/14) before the Senate Banking Committee suggesting the call to taper pushed further out.
  • Members of the ECB governing council suggesting further policy easing measures (since the cut):
    • ECB Executive Board member Peter Praet said negative interest rates could be adopted or assets purchased from banks if needed.
    • ECB Executive Board member Joerg Asmussen said that depending on how inflation develops, the central bank has not reached the lower bound on interest rates. He added that while he is wary of such a move, the ECB could also push the deposit rate into negative territory.
    • ECB Executive Board member Benoît Cœuré said that the central bank can further cut interest rates and provide the banking system with additional liquidity.
    • Austria’s Central Bank head and Governing Council member Ewald Nowotny said that the central bank's main concern is stagnation, not inflation. He added that unlike the Fed, the ECB had not yet reached the lower zero bound on interest rates.

 

In contrast, we expect sober hawkish policy from the BOE.  The UK was the first to issue austerity, which we think will continue to boost its growth profile above most of its European peers.  Improving economic data (more below) continues to confirm this position.  On policy, we expect interest rates to be on hold over the medium term, with expectation for a hike over the longer term, and the asset purchase program target (QE) to remain unchanged.  Both positions should strengthen the GBP/USD and GBP/EUR. 

 

 

Improving UK Data This Week:


BOE’s  Inflation Report-

  • brought forward the likelihood of 7% unemployment rate to Q3 of 2015
  • raised 2014 GDP forecast to 2.8% from 2.7%

High Frequency Data-

  • UK Retail Sales 1.8% OCT Y/Y vs 2% SEPT
  • UK ILO Unemployment Rate 7.6% SEPT vs 7.7% AUG
  • UK Jobless Claims Change -41.7K OCT vs -44.7K September
  • UK PPI Input -0.3% OCT Y/Y (exp. 0.1%) vs 0.9% SEPT
  • UK CPI 2.2% OCT Y/Y (Exp. 2.5%) vs 2.7% September.  We expect this move downward in inflation to aid consumer spending. 

Staying Long the British Pound! - vv. inflation new


KEITH'S TOP-20 #YELLEN TWEETS

Takeaway: Mucker was not at a loss for tweets today.

Rumor on the street is Hedgeye CEO Keith McCullough developed Carpal Tunnel Syndrome earlier today tweeting during Janet Yellen's testimony before the Senate Banking Committee. (Say you want about Mucker, but the guy is prolific). Here are his best tweets on Yellen.

 

KEITH'S TOP-20 #YELLEN TWEETS - km1

 

TOP-20 TWEETS

  1. Sad day in America #Yellen
  2. This is definitely the America the Founding Fathers had in mind #Yellen
  3. This is one of the best macro positions I've had on all yr, and I absolutely hate why its working
  4. I am long $GLD $TLT and $XLU today- making money for reasons that will kill this country
  5. If you know who Janet Yellen really is, you'd never have shorted the US stock market into this
  6. The Mother of All Doves will be the Mother of All Bubbles #Yellen
  7. Anyone who thought Yellen would be more "hawkish" was dead wrong - she is a raging dove
  8. This is like watching 15th century dudes do QA w/ a "scientist" who thought the world was flat
  9. Whoever trusts Yellen is going to be able to land this plane is on meth
  10. "We are not a prisoner of the markets" - right right
  11. In the sequel to Atlas Shrugged, Wesley Mouch will return as Janet Yellen Mouch
  12. #YELLEN like Bernanke "sees no bubbles", and they are everywhere
  13. #YELLEN wants Policies To Inflate (Burn The Currency)
  14. #YELLEN is committed to reflating Gold, Food Prices, Bonds etc
  15. Yellen is now opining on the valuation of the stock market!
  16. she's smirking when she talks about Gold - which is front-running her linear policy world
  17. She has prepared her whole life to try to sell you that she was put on earth to "smooth" gravity
  18. "Ripple effects are benefiting all Americans" (like the all-time highs in food and gas prices) -Yellen
  19. Yellen easily the least impressive of the last 3 charlatans selling economic policy as a "science"
  20. She can't land this Bond Bubble plane safely, its official

 

 


Van Sciver: Can $FDX Still Outperform?

Hedgeye Industrials Sector Head Jay Van Sciver gives his take on FedEx which he presented as a "Top Long" idea a year ago. Shares have risen sharply since then, raising the question of whether FDX shares can continue to outperform.

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN

Takeaway: Adjusting for the effects of Hurricane Sandy this time last year we find that the rate of labor market improvement continues to accelerate.

Below is the detailed breakdown of this morning's claims data from the Hedgeye Financials team.  If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

More Good News on the Labor Front

This week's data shows a continuation and modest acceleration in the rate of improvement in the labor market. As is our convention we largely disregard the seasonally adjusted data and instead look at the year-over-year rate of change in the non-seasonally adjusted data.

 

This week is a bit difficult on that front because we are lapping the impact of Hurricane Sandy. This week last year we saw a 78,000 W/W increase in claims from Sandy. If we adjust the numbers for Sandy we find that the Y/Y rate of improvement this week came in at -8.9%, i.e. claims are lower than last year by 8.9%. This is a modest acceleration in trend from the previous week's -8.4%. On a rolling basis the dynamic is similar, where the rate of improvement strengthened to -8.1% from -5.1%, but we are also coming off the distortion of the California IT hiccup.

 

The net of it is that the labor market continues to gain momentum and this should, on the margin, push up tapering expectations and push up the long end of the yield curve. Beneficiaries include asset sensitive and credit sensitive financials.

 

Nuts & Bolts 

Prior to revision, initial jobless claims rose 3k to 339k from 336k WoW, as the prior week's number was revised up by 5k to 341k.

 

The headline (unrevised) number shows claims were lower by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4.75k WoW to 343.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -13.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.9%. This is unadjusted for the Sandy distortion we profile above.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 1

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 2

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 3

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 4

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 5

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 6

 

 

Yield Spreads

The 2-10 spread rose 5 basis points WoW to 240 bps. 4Q13TD, the 2-10 spread is averaging 230 bps, which is lower by 4 bps relative to 3Q13.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 7

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 8

 

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN

Takeaway: Adjusting for the effects of Hurricane Sandy this time last year we find that the rate of labor market improvement continues to accelerate.

More Good News on the Labor Front

This week's data shows a continuation and modest acceleration in the rate of improvement in the labor market. As is our convention we largely disregard the seasonally adjusted data and instead look at the year-over-year rate of change in the non-seasonally adjusted data. This week is a bit difficult on that front because we are lapping the impact of Hurricane Sandy. This week last year we saw a 78,000 W/W increase in claims from Sandy. If we adjust the numbers for Sandy we find that the Y/Y rate of improvement this week came in at -8.9%, i.e. claims are lower than last year by 8.9%. This is a modest acceleration in trend from the previous week's -8.4%. On a rolling basis the dynamic is similar, where the rate of improvement strengthened to -8.1% from -5.1%, but we are also coming off the distortion of the California IT hiccup. The net of it is that the labor market continues to gain momentum and this should, on the margin, push up tapering expectations and push up the long end of the yield curve. Beneficiaries include asset sensitive and credit sensitive financials.

 

Nuts & Bolts 

Prior to revision, initial jobless claims rose 3k to 339k from 336k WoW, as the prior week's number was revised up by 5k to 341k.

 

The headline (unrevised) number shows claims were lower by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4.75k WoW to 343.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -13.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.9%. This is unadjusted for the Sandy distortion we profile above.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 1

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 2

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 3

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 4

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 5

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 6

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 7

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 8

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 9

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 10

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 11

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 12

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 13

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 19

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 14

 

Yield Spreads

The 2-10 spread rose 5 basis points WoW to 240 bps. 4Q13TD, the 2-10 spread is averaging 230 bps, which is lower by 4 bps relative to 3Q13.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 15

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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