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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 27, 2014


As we look at today's setup for the S&P 500, the range is 36 points or 0.57% downside to 1842 and 1.37% upside to 1878.                                   

                                                                                            

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.25 from 2.25
  • VIX closed at 14.93 1 day percent change of 6.49%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: GDP q/q, 4Q final, est. 2.7% (prior 2.4%)
  • Personal Consumption, 4Q, est. 2.7% (prior 2.6%)
  • GDP Price Index, 4Q, est. 1.6% (prior 1.6%)
  • Core PCE q/q, 4Q, est. 1.3% (prior 1.3%)
  • 8:30am: Fed’s Pianalto speaks in Dayton, Ohio
  • 8:30am: Jobless Claims, March 21, est. 323k (prior 320k)
  • Continuing Claims, March 14, est. 2.882m (prior 2.889m)
  • 9:45am: Bloomberg Consumer Comfort, March 23 (prior -29.0)
  • 10am: Pending Home Sales m/m, Feb., est. 0.2% (prior 0.1%)
  • Pending Home Sales y/y, Feb., est. -9% (prior -9.1%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Kansas City Fed Manufacturing, March, est. 5 (prior 4)
  • 9:30pm: Fed’s Evans speaks in Hong Kong

GOVERNMENT:

    • FY2015 budget hearings/panels:
    • 10am: House Appropriations panel: Army Sec. John McHugh, Army Chief of Staff Raymond Odierno
    • 10am: House Appropriations panel EPA Administrator Gina McCarthy
    • 10am:House Appropriations panel: FDA Commissioner Margaret Hamburg
    • 1:30pm: House Appropriations panel:VA Sec. Eric Shinseki
    • 10am: Senate Judiciary Cmte marks up S. 1720, Patent Transparency and Improvements Act
    • 12:30pm: Zillow CEO Spencer Rascoff at Advisory Cmte to the Congressional Internet Caucus
    • Obama meets Pope Francis in Vatican City, President Giorgio Napolitano, Prime Minister Matteo Renzi of Italy in Rome
    • *U.S. ELECTION WRAP: Democrats’ Senate Playbook; GOP Strategy

WHAT TO WATCH:

  • Citigroup fails Fed’s stress test as BofA gets div. boost
  • Fed Capital Wrap: Who boosted dividends?
  • RBS stress test failure may hinder sale of U.S. unit
  • UBS said to suspend FX traders in New York, Zurich, Singapore
  • Yahoo Japan to buy EAccess from SoftBank for $3.17b
  • IMF announces staff level pact on Ukraine bailout loan
  • Malaysian air tragedy families seeking data from airline, Boeing
  • Babcock to buy helicopter provider Avincis for $1.52b
  • Facebook seen struggling to win developers for virtual plans
  • Sprint planning to offer low-cost airwaves to rural users
  • Boeing splits new ANA plane order with Airbus
  • Twitter preparing new music strategy, WSJ says
  • Tencent leads Asian internet shr drop; off most since 2011
  • Essex Property to replace Cliffs Natural in S&P 500
  • Microsoft to unveil Office for iPad program today
  • ProSiebenSat.1 buys 20% of YouTube video maker for web growth

AM EARNS:

    • Accenture PLC (ACN) 7am, $1.04
    • Commercial Metals Co (CMC) 7am, $0.10
    • Conn’s (CONN) 7am, $0.78
    • Fred’s (FRED) 7:45am, $0.15
    • GameStop (GME) 8:30am, $1.93 - Preview
    • Leidos Holdings (LDOS) 6am, $0.45
    • Lululemon Athletica (LULU) 7:15am, $0.72 - Preview
    • Signet Jewelers (SIG) 6:30am, $2.15
    • Winnebago Industries (WGO) 7am, $0.30
    • Worthington Industries (WOR) 8:30am, $0.58

PM EARNS:

    • Oxford Industries (OXM) 5:30pm, $0.86
    • Progress Software (PRGS) 4:15pm, $0.28
    • Red Hat (RHT) 4:04pm, $0.37 - Preview
    • Restoration Hardware Holdings (RH) 4:02pm, $0.83

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Declines to Six-Week Low on Outlook for Less U.S. Stimulus
  • Top Emerald Miner Targets Colombia Grappling With Gemstone Mafia
  • Chinese Pigs Eating Soy Cut U.S. Supply to 1965 Low: Commodities
  • WTI Near One-Week High as Cushing Inventories Fall; Brent Steady
  • Sugar Output in India Seen Jumping as Subsidy Boosts Exports
  • Copper Rises as Investors Unwinding Quarterly Bets: LME Preview
  • Sugar Rises for Fourth Session on El Nino Worries; Cocoa Falls
  • Rusal Wins U.K. Lawsuit Challenging LME Warehousing Rules
  • Soybeans Climb to One-Week High as U.S. Reserves Seen Declining
  • Gold Imports by India Seen Rebounding by Billionaire Jeweler
  • Soros-Endorsed Sale of U.S. Oil Reserves Seen as Russian Penalty
  • Oil-Price Gains Seen by Investors Shifting Cash Into Energy ETFs
  • Iraq Oil Income to Jump on Decades-High Output: Chart of the Day
  • Singapore Exchange Said to Plan Starting Physical Gold Trade

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


Today at 11am EST: Call With LOGIC President on E-Cigs

Today at 11am EST we continue our Speaker Series on electronic cigarettes with Miguel Martin, President of leading e-cig manufacturer LOGIC.

 

LOGIC, a closely held company, is an industry leader and has the #2 national brand in unit and dollar share for C-Stores in the United States, according to Nielsen data.

 

Please send any questions for Miguel to  and he will answer them following his prepared remarks.

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 951384#
  • Materials: CLICK HERE (materials will be available approximately one hour prior to the start of the call)

 

CALL TOPICS WILL INCLUDE

  • Key industry developments and trends
  • What the regulatory outlook looks like in the U.S. and abroad
  • LOGIC’s market share and product offering

 

ABOUT MIGUEL MARTIN, PRESIDENT OF LOGIC

Martin began his career at Philip Morris USA and over the course of 18 years served in various sales and marketing roles. He is the former senior Vice President and General Manager of Altria Sales & Distribution, where he led all merchandising and distribution services for Philip Morris USA, U.S. Smokeless Tobacco Co. and John Middleton. He joined LOGIC as President in July 2013.

 

ABOUT LOGIC 

LOGIC began distribution in 2010, and as of March 2014, is available in more than 50,000 retail outlets in the United States. The privately held company began in Livingston, New Jersey and is now based out of a new headquarters in Pompano Beach, Florida.

 

Please email  for more information.

 


March 27, 2014

March 27, 2014 - Slide1

 

BULLISH TRENDS

March 27, 2014 - Slide2

March 27, 2014 - Slide3

March 27, 2014 - Slide4

March 27, 2014 - Slide5

March 27, 2014 - Slide6

 

BEARISH TRENDS

March 27, 2014 - Slide7

March 27, 2014 - Slide8

March 27, 2014 - Slide9

March 27, 2014 - Slide10

March 27, 2014 - Slide11
March 27, 2014 - Slide12


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

Retail Callouts (3/27): TGT, WMT, KSS, M, ADIBOK/NKE, COST

Takeaway: TGT declaring victory prematurely. WMT last in grocery survey. Levi’s cuts 5% of workers. Brookstone preps Ch11. KSS $175 price point?

EVENTS TO WATCH

 

  • THURSDAY
    RH - Earnings Call: Thursday 3/27, 5:00pm


FRIDAY

  • FINL - Earnings Call: Friday 3/28, 8:30am

 

COMPANY NEWS

 

TGT - Target, Visa Say Fraud Limited in Wake of Data Breach

(http://online.wsj.com/news/articles/SB10001424052702304688104579464091428141708)

 

  • "Target Corp. said it has seen relatively little fraudulent activity on its cards following a massive data breach over the holidays...Target Chief Financial Officer John Mulligan, speaking at a Senate Commerce Committee hearing Wednesday, said there has been $2 million in fraud on the Visa credit cards it issues and none on Target's store-issued debit cards."
  • "Ellen Richey, chief legal officer at Visa Inc., said the percentage of cards stolen during the Target breach that have been used for fraud is much lower than the 2% to 5% rate that the card issuer normally sees in such circumstances due to the relatively quick notification of the breach."

 

Takeaway: The actual degree of fraud probably does not matter as much to consumers as the simple fact that their data was unknowingly handed out to people intending to do harm. The bottom line is that Target might be breathing a mini sigh of relief here -- which might be warranted as it relates to its own liability for damages done. But the big challenge is regaining customer trust. We still think that will take upwards of 2-years.

 

LS&Co. - Levi's Restructuring Will Cut 800 Jobs

(http://www.wwd.com/markets-news/denim/levis-to-streamline-operations-and-eliminate-800-jobs-7617747)

 

  • "Levi Strauss & Co. said it is restructuring operations — resulting in the loss of 800 jobs — through a global productivity initiative to occur in phases over the next 12 to 18 months."
  • "The initiative to streamline operations, when complete, is expected to result in an annualized cost savings of $175 million to $200 million."
  • "This first phase will result in the elimination of 800 positions, or 20 percent of Levi’s nonretail and nonmanufacturing staff. The cuts will eliminate management layers and remove duplicative roles, plus regroup country clusters and incorporate other structural changes, the company said...the company said it employed 16,000 people globally as of Nov. 24, when its last fiscal year ended."

 

Takeaway: This is a big deal for Levi's. 800 employees might not seem like a huge deal for most companies, but this is 5% of the company's workforce. There's got to be something other than just employee cuts at play here, because the math suggests that the average employee cost is $250,000, which is way too high given that most of the cuts will be administrative.

 

WMT - Wegmans, Trader Joe's top supermarket ratings; Walmart at bottom

(http://www.chainstoreage.com/article/wegmans-trader-joes-top-supermarket-ratings-walmart-bottom)

 

  • "Thousands of subscribers to the world's largest independent product-testing organization weighed in on grocery shopping via Consumer Reports’ latest survey – and gave Wegmans, Trader Joe's, Publix, Costco and Sprouts the highest scores overall among 55 of the nation's major grocery stores."
  • "Walmart landed at the bottom of the ratings, based on a survey of the 27,208 subscribers."
  • "The biggest gripe overall: Not enough open checkouts (cited by 19% of shoppers), followed by congested aisles, out-of-stock advertised specials, and lack of choice."

 

Takeaway: Not a surprise that Trader Joe's is near the top of the list. Though notable that Whole Foods is nowhere to be found. While we always look at these surveys with a very critical eye, if there's one organization we'll always give the benefit of the doubt, it's Consumer Reports.  Wal-Mart bringing up the rear is simply embarrassing. Lack of checkouts, out of stocks, lack of choice -- not the factors WMT wants to see cited by its customers.

 

 

ADDYY - Pharrell to Collaborate With Adidas

(http://www.wwd.com/markets-news/intimates-activewear/pharrell-williams-to-collaborate-with-adidas-7618802)

 

  • "...Williams today will reveal that he has been tapped as Adidas’ newest collaborator."
  • "Following in the footsteps of Raf Simons, Yohji Yamamoto and Rick Owens, Williams will launch his new line of products for Adidas Originals later this summer. The Simons, Yamamoto and Owens collaborations continue, meanwhile."
  • "The collection will be the latest in a string of fashion tie-ups for the 40-year-old producer, singer and fashion designer — who already is working with G-Star, Comme des Garçons on a fragrance line, Moncler on sunglasses and Uniqlo on a shirt collaboration. That is on top of his own collection, Billionaire Boys Club, and in the wake of past collaborations with brands such as Louis Vuitton."

 

Takeaway: Hardly a threat to Nike. Adidas has been doing these celebrity endorsements for years, and it's taken them into product areas where Nike simply does not belong. If Pharrell could dunk, throw a 95mph fastball, or run a sub-4-minute mile, then Nike might go there. The endorsement strategies for these two companies could not be more different.

 

KSS - Elie Tahari to Partner with Kohl’s for Next DesigNation Collection

(http://phx.corporate-ir.net/phoenix.zhtml?c=60706&p=irol-newsArticle&ID=1912835&highlight=)

 

  • "Kohl’s Department Stores today announced Elie Tahari will design the retailer’s fifth DesigNation limited-edition collection...The capsule ...will feature apparel for her and will be available exclusively at Kohl’s and Kohls.com beginning fall 2014."
  • "His DesigNation collection will...include dresses, sweaters, knit tops and bottoms in shades of blue, black and ivory, all at an incredible value. Retail prices for the collection will range from $40 to $175."

 

Takeaway: $175 price point seems a little steep for KSS - even if it's for Elie Tahari. We wonder what the shopper profile looks like for these DesigNation capsules.

 

OTHER NEWS

 

M - Tony Spring Shapes Bloomingdale's Team

(http://www.wwd.com/retail-news/department-stores/bloomingdales-eyeing-growth-7618900)

 

  • "WWD has learned that [Tony Spring, the new chairman and chief executive officer of Bloomingdale’s] has just triggered his first management changes involving reorganizing responsibilities at the highest rung. Along with the team, he’s identifying categories and services the company could develop to broaden the offering and further the store’s growth — from food to electronics to additional customer services."
  • "Among the management shifts, Francine Klein has been promoted to vice chairman, from executive vice president and general merchandise manager."
  • "Now reporting to Klein are two senior vice presidents: Arnie Orlick, outlets, and Anne Bridges, omnichannel experience and technology."
  • "Frank Doroff, vice chairman, will add new businesses and concessions to his current responsibilities for ready-to-wear and bloomingdales.com. Patricia Chadwick continues as senior vice president for new businesses and concessions, and will now report directly to Doroff."
  • "Charles Anderson, executive vice president and director of stores, will add store operations to his duties. Jay Fogg, senior vice president of store operations, will report to Anderson."

 

Brookstone - Brookstone, Specialty Retailer, Preparing For Bankruptcy Filing

(http://online.wsj.com/news/articles/SB10001424052702304418404579464260201032406)

 

  • "Brookstone Inc...is preparing to file for bankruptcy protection as early as Sunday, with a plan in place to be bought by another specialty retailer, people familiar with the matter said."
  • "...Spencer Spirit Holdings Inc., which owns Spencer's and costume retailer Spirit, has been in discussions with Brookstone for weeks, the people said, as Brookstone battles disappointing sales, weak liquidity and a hefty debt load. The two parties are hoping to finalize sale paperwork over the weekend leading up to a bankruptcy filing, they said."
  • "Spencer Spirit Holdings is expected to pay around $120 million for Brookstone, the people said. Brookstone has about $140 million in debt."

Video | Is the Social Media Bubble Close to Popping?

 

 

 


DOES THE EM RELIEF RALLY HAVE LEGS?

Takeaway: We are inclined to believe the current relief rally across EM capital and currency markets has legs w/ respect to the intermediate term.

CONCLUSIONS:

 

  1. Key resistance levels are being tested across the broad spectrum of EM capital and currency markets.
  2. Importantly, this comes as the top-down, global macro fundamentals are getting far less bearish for emerging market assets, at the margins.
  3. To the extent we receive quantitative confirmation of our fundamental views, we think the current relief rally across EM capital and currency markets has legs w/ respect to the intermediate term.

 

On FEB 27 we held a conference call on Brazil (CLICK HERE to access the replay podcast and slide deck). The key purpose of the call was three-fold:

 

  1. To alert investors of the potential for a relief rally across EM capital and currency markets in which the most embattled of countries were likely to see their markets outperform;
  2. To encourage investors to get long the Brazilian real; and
  3. To lay the groundwork for getting behind Brazilian equities on the long side – Petrobras (PBR) in particular – in preparation for any confirmed quantitative breakout.

 

To those points:

 

  1. EM assets are up an average of +1% at the asset class level since that call, with 2013 crisis countries India (EPI), Turkey (TUR) and Indonesia (EIDO) leading the way to the upside at +8.6%, +7.8% and +5%, respectively;
  2. The Brazilian real has appreciated +54bps vs. the USD in the spot market, contributing to a total return to +1.32% – good for seventh best among the 23 EM currencies tracked by Bloomberg;
  3. PBR bottomed on MAR 17 and Brazil (EWZ) put in a higher-low on MAR 14; since FEB 27, they have appreciated +4.2% and +2.1%, respectively.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - EM Divergence Monitor

 

The performance of those markets surely isn’t anything to write home about as it relates to taking any sort of victory lap. That being said, the aforementioned deltas do indeed increase our conviction in our call for an intermediate-term relief rally across EM capital and currency markets.

 

We’ve written extensively in recent months on why we think domestic economic growth slowed here in 1Q14 and why we think the slope of reported growth data will remain generally negative on a 3-6M forward basis, so we’ll spare you the details in the pursuit of brevity. Just know that the following quantitative signals remain in support of our research view:

 

The US dollar, long-term US interest rates both remain bearish from an intermediate-term TREND perspective insomuch as commodities (CRB Index) remain bullish from TREND perspective. Taken in conjunction, we see that macro market participants are effectively front-running a proactively predictable reversal of now-hawkish monetary policy out of the FOMC, at the margins. In our opinion, it would represent a strong lack of fiduciary responsibility for any investor to take the Fed’s forecasts for growth and policy guidance at face value.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - DXY

 

DOES THE EM RELIEF RALLY HAVE LEGS? - UST 10Y

 

DOES THE EM RELIEF RALLY HAVE LEGS? - CRB Index

 

DOES THE EM RELIEF RALLY HAVE LEGS? - 5

 

The YTD performance spread between the slow-growth Utilities sector (XLU) and the pro-growth Consumer Discretionary sector (XLY) is extremely material at 1105bps wide and is signaling a trip to Quad #3 (i.e. Growth Slows as Inflation Accelerates) on our GIP model.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - 6

 

DOES THE EM RELIEF RALLY HAVE LEGS? - UNITED STATES

 

Domestic economic growth as a style factor at the Macro ETF level is broadly breaking down quantitatively on our Tactical Asset Class Rotation Model (TACRM)™ (to be fully introduced in the coming weeks), while, at the same time, emerging market assets are broadly breaking out. The chart below captures inflection points at critical thresholds of momentum after at least three months above/below the stated threshold (refer to the conclusion of this note for more details). 

 

DOES THE EM RELIEF RALLY HAVE LEGS? - 8

 

We don’t want to get above our ski tips for places like Brazil and LatAm, because our backtest data shows that the difference in breaking out above the critical threshold of 0x and +1x is literally the difference between a short-selling opportunity and a buying opportunity. That being said, we do like the composition of those ETFs that have already made it to this quantitative “promised land” (i.e. breaking out above +1x), so we’re inclined to wait in sanguine fashion as it relates to our call.

 

It’s worth noting that our proprietary risk management levels are essentially signaling the same thing across each of the four primary EM asset classes. The EEM, EMB, EMLC and CEW ETFs have all broken out above their respective TREND lines very recently. We wouldn’t chase ‘em up here, but, for the first time in several quarters, we’d be buyers of EM assets to the extent these broader indices start to make higher-lows above their respective TREND lines – thus confirming any quantitative breakout(s).

 

DOES THE EM RELIEF RALLY HAVE LEGS? - EEM

 

DOES THE EM RELIEF RALLY HAVE LEGS? - EMB

 

DOES THE EM RELIEF RALLY HAVE LEGS? - EMLC

 

DOES THE EM RELIEF RALLY HAVE LEGS? - CEW

 

Getting into idiosyncratic fundamentals, here are some brief updates on the country-specific strategy calls we’ve been making in recent months:

 

Long “New China”/Short “Old China (CLICK HERE to review our thesis): Amid headlines of a “currency crisis”, “systemic” defaults and an overhyped run on a miniscule Chinese bank, Chinese leaders continue to hold the line on GDP growth, effectively marking the mid-to-low 7% range as a floor for economic growth. With the Chinese sovereign and PBoC both well-equipped to combat any continued slowing from, we’d be buyers of “New China” outright. Shorting “Old China” exposure against that helps us sleep better at night… An equal weighted strategy of long the MSCI China Technology Index + the MSCI China Consumer Discretionary Index vs. Short the MSCI China Financial Index + the MSCI China Industrials Index has generated a cumulative +3360bps of performance since when we introduced the strategy back on DEC 4, we’d definitely stick with the game plan until the Chinese government tells us not to.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - CHINA

 

Long the Brazilian real (CLICK HERE to review our thesis): It would appear that the well-telegraphed S&P downgrade of Brazilian sovereign debt to BBB- effectively marked the bottom in Brazilian equities. Classic lagging indicator. Recent polling and consumer confidence data insulate our call that both the campaign cycle and eventual election results will force fiscal policy to remain at least rhetorically tight ahead of the elections and outright tighter in the subsequent quarters. The market doesn’t think Tombini will have enough headroom on growth to keep hiking here, but our World Cup impact analysis suggests he will. That’s positive for the BRL and positive for the country’s woeful BoP dynamics – as is the World Cup… Introduced as a Best Ideas 1M ago, we’d definitely stick with the game plan here, as this idea remains far from consensus.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - BRAZIL

 

Long India (CLICK HERE to review our thesis): No major updates here. The RBI, chaired by Dr. Rajan, continues to maintain a hawkish policy bias and the opposition, led by prime ministerial candidate Naredra Modi, continues to gain momentum in the eyes of investors ahead of the upcoming parliamentary elections – particularly when juxtaposed with recent empty promises of 8% GDP growth out of the “ruling” Congress party. India’s “turnaround story” continues… India (EPI) is up +9.14% since we introduced the call back on OCT 29; that’s good for the third-best return across the investable EM ETF universe (29 in total) and one of only four that have posted positive performance since then. Stick with the game plan here, as most of our positive political and GIP catalysts have yet to materialize.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - INDIA

 

Long Indonesia (CLICK HERE to review our thesis): The [positive] “Jokowi Effect” was even larger than we had initially anticipated, as evidenced by the dramatic melt-up in both Indonesian equities and the IDR in  recent weeks into and through the MAR 14 announcement of ever-popular Jakarta governor Joko Widodo’s candidacy for JUL’s presidential ballot, which is only a few months after next month’s parliamentary election where Jokowi’s PDI-P party should take the largest share of seats. Amid the campaigning, Bank Indonesia has pledged to maintain its hawkish policy bias and there are talks of a meaningful economic reform package to be introduced shortly after the elections. Check. Check. Check… Indonesia (EIDO) is up +16.1% since we introduced the call back on JAN 30; that’s good for the second best performance among EM equity ETFs since then. Like India, many of the positive political and GIP catalysts have yet to materialize, so we’d stick with the game plan here as well.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - INDONESIA

 

Short Philippines (CLICK HERE to review our thesis): Short-term rates (i.e. 2Y sovereign yields) in the Philippines are ripping (+51bps WoW) as central bank governor Amando Tetangco confirmed that his policy board favors “early, measured adjustments” in monetary policy, effectively puling forward an expectations for policy rate normalization. It’s worth noting that this commentary comes roughly six weeks after he presented a hawkish outlook for local inflation back in mid-JAN… We’ve gotten this one wrong, with Philippines (EPHE) appreciating +7.9% since our JAN 30 note. Specifically, we think the market is paying up for what is clearly one of the better secular growth and investment stories remaining in the EM universe. We’re not inclined to fight the tide here, so we’d be inclined to “book” the loss here.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - PHILIPPINES

 

Short the Chilean peso (CLICK HERE to review our thesis): The central bank, led by President Rodrigo Vergara, has maintained a dovish bias in recent months, but, as of last Friday, the degree of dovishness is now under review. With headline economic growth basically getting cut in half in the most recently reported quarter, we’d take the other side of the central bank’s +4.3% 2014 forecast, which means they’ll likely be easing more dramatically and for longer than even they expect… Another solid “win” for us in the currency market to-date, with the CLP declining -1.8% vs. the USD in the spot market since our JAN 21 note. That’s good for the third-worst spot return across the 21 currencies I actively monitor within my coverage universe. That being said, near uniform testing of the aforementioned TREND lines mitigates any patience we once had on the short side of EM capital and currency markets. As such, we’re inclined to “book” the gain here. We can revist the trade later if beta once again turns negative, as the GIP fundamentals do indeed support a lower value for the Chilean peso.

 

DOES THE EM RELIEF RALLY HAVE LEGS? - CHILE

 

As always, please feel free to ping us with any questions and/or critical observations you believe we may have missed.

 

DD

 

Darius Dale

Associate: Macro Team

 

 

TACRM Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI):

TACRM™ is specifically designed to provide tactical security selection, general global macro market color and suggested dynamic asset allocation weightings. One of the ways it does this is by providing a standardized measure of momentum across various asset classes and systematically making sense of those signals.

 

This VAMDMI score is derived by calculating three independent z-scores of closing price data on a weekly basis and then calculating the arithmetic mean of this sample.

 

  • Short-term z-score: 1-3M sample
  • Intermediate-term z-score: 3-6M sample
  • Long-term z-score: 6-12M sample

 

Each independent sample size is determined dynamically by prevailing trends in global macro volatility. Specifically, if the BofA Global Financial Stress Index is making lower-lows on an intermediate-term basis, then each of the sample sizes are larger in duration; if the BofA Global Financial Stress Index is making higher-lows on an intermediate-term basis, then each of the sample sizes are smaller in duration.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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