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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 16, 2014


As we look at today's setup for the S&P 500, the range is 50 points or 2.06% downside to 1805 and 0.65% upside to 1855.                                                      

                                                                         

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2A

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.28 from 2.26
  • VIX  closed at 15.61 1 day percent change of -3.10%

MACRO DATA POINTS (Bloomberg Estimates):

 

  • 7am: MBA Mortgage Applications, April 11 (prior -1.6%)
  • 8:30am: Housing Starts, March, est. 970k (prior 907k)
  • 8:30am: Fed’s Stein speaks on QE at Atlanta Fed conf.
  • 9:15am: Capacity m/m, March, est. 78.7% (prior 78.8%)
  • 9:15am: Industrial Production m/m, March, est. 0.5% (pr 0.6%)
  • 10:30am: DOE Energy Inventories
  • 12pm: Fed’s Lockhart speaks at Atlanta Fed conf.
  • 12:25pm: Fed’s Yellen speaks to Economic Club of New York
  • 1:25pm: Fed’s Fisher speaks in Austin, Texas
  • 2pm: Federal Reserve releases Beige Book

GOVERNMENT:                 

    • President Obama, Vice President Biden visit Leetsdale, Pa., for an event on the economy
    • House, Senate not in session     
    • 9am: Energy Sec. Ernest Moniz speaks on energy policy at Sam Nunn Policy Forum          
    • 9:30am: Reps. Rosa DeLauro, D-Conn., Louise Slaughter, D-N.Y, on conf. call hosted by Economic Strategy Institute on Obama’s trip to Asia, refusal by Congress to provide fast-track trade authority

WHAT TO WATCH:

  • Ukraine says Russian forces helping separatists amid battles
  • China urged by U.S. to allow bigger mkt role in valuing yuan
  • NYSE owner said to buy Algo Technologies to modernize exchange
  • Citic Pacific to pay $36b for assets from Chinese parent
  • Moelis raises less than planned in investment-bank IPO
  • Ford, Dodge cars in focus at New York Auto Show
  • GM CEO Barra adds team to focus on safety
  • Anadarko joins ad blitz to pre-empt Colorado fracking limits
  • Obamacare sign-up extension closes regular enrollment for 2014
  • Credit Suisse net trails est. on lower investment bank income
  • Credit Suisse said to get N.Y. subpoena in tax-evasion probe
  • Deutsche Bank said to seek sale of Cosmopolitan Vegas resort
  • China’s expansion slows as property construction falls
  • Alibaba posts profit on sales promotion ahead of IPO
  • Alibaba said to plan Hong Kong-style fee as carrot for banks
  • BHP quarterly iron ore production rises 23% to beat forecast

AM EARNS:

    • Abbott Laboratories (ABT) 7:44am, $0.36 - Preview
    • Bank of America (BAC) 7am, $0.27 - Preview
    • First Republic Bank (FRC) 7am, $0.73
    • Huntington Bancshares (HBAN) 5:55am, $0.17
    • Kansas City Southern (KSU) 8am, $0.99 - Preview
    • Metro (MRU CN) 7am, C$1.02
    • PNC Financial (PNC) 6:24am, $1.65
    • St Jude Medical (STJ) 7:30am, $0.95 - Preview
    • US Bancorp (USB) 7am, $0.73 - Preview
    • WW Grainger (GWW) 8am, $2.96

PM EARNS:

    • Adtran (ADTN) 8:15pm, $0.20
    • Albemarle (ALB) 4:03pm, $0.95
    • American Express (AXP) 4:01pm, $1.30
    • Capital One Financial (COF) 4:05pm, $1.70
    • Crown Holdings (CCK) 5:03pm, $0.51
    • East West Bancorp (EWBC) 5:02pm, $0.53
    • Google (GOOG) 4:02pm, $6.39
    • International Business Machines (IBM) 4:05pm, $2.54 -Preview
    • Kinder Morgan (KMI) 4:05pm, $0.28
    • Noble (NE) 5pm, $0.70
    • People’s United Financial (PBCT) 4:03pm, $0.20
    • Plexus (PLXS) 4pm, $0.60
    • SanDisk (SNDK) 4:05pm, $1.27
    • SLM (SLM) 4:15pm, $0.55
    • Steel Dynamics (STLD) 6pm, $0.16
    • Triangle Petroleum (TPLM) 5:58pm, $0.12
    • United Rentals (URI) 4:15pm, $0.71

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Nickel Drops Most in Nine Months as Metals Fall on China Concern
  • WTI Falls From Six-Week High With Brent on U.S. Supply Forecast
  • Profit Tastes Like Chicken in Search for Cheap Meat: Commodities
  • Palm Oil Crop at Risk Across Southeast Asia as El Nino Looms
  • Gold Falls From 3-Week High on U.S. Outlook as Palladium Drops
  • White Sugar Halts Decline Before Delivery as Coffee Also Climbs
  • Corn Declines as Planting Concerns Ease While Soybeans Advance
  • China Gold Demand Rising 25% by 2017 as Buyers Get Wealthier
  • Rio Produces Record Iron Ore Output as Global Supply Gains
  • Coal Returns to German Utilities Replacing Lost Nuclear: Energy
  • Canada’s Climate Warms to Corn as Grain Seeks Great White North
  • Pump Prices in U.S. Climb to Eight-Month High as Supplies Slide
  • Nestle Sees 2H Commodity-Cost Rise, Will Raise Prices: BI Chart
  • Gold Seen Losing 22% by Westpac’s Smirk to End Year at $1,025

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

 

 

 

 

 

 

 

 

 

 

 

 

 



Poll of the Day Recap: Only the Beginning of #GrowthSlowing?

Takeaway: At the time of this post, an overwhelming 84% voted YES; 16% said NO.

Poll of the Day Recap: Only the Beginning of #GrowthSlowing? - 9

 

In recent months, a variety of economic data has shown that consumer spending and the economy haven’t been what you call ‘healthy.’
 

But, while one of Hedgeye’s macro themes for 2014 has been #GrowthSlowing, we wanted to hear what you had to say. So, we asked in today’s poll: Do you think economic growth in the United States is accelerating or slowing?
 

At the time of this post, an overwhelming 84% voted YES; 16% said NO.
 

(Voters sharply swung so much in one way, that we didn’t receive any comments on why people voted NO.)

 

Here’s a sampling of some of the responses we received:

  • “As a business owner dealing with across the board demographic households buying homes, purchasing groceries, and basically living…growth is definitely slowing. This is only the beginning.”
     
  • “I believe [Hedgeye’s] thesis on the impact of commodity inflation on the consumer.  A good example is natural gas. If you missed a trip to the mall because of a blizzard, you might WANT to go when the weather improves but you CAN'T because your utility bill was 3X last February.”
     
  • “This is a joke, right? A sad, silly joke, but still a joke. Growth? Where? Inflation is not growth. Main Street is being milked dry; real prices are outpacing real wages by a few hundred furlongs; the stock market is not the supermarket; questionable economic data anesthetizes the masses while Ben and Janet gorge on way too much Ben and Jerry's...Genuine growth? Pfft.”
     
  • “Just as previously articulated, March and April are nicely set up with weather adjustments and the late Easter.  May and beyond get tough comps for the real economy.”
     
  • “Lying Keynesians are always looking in the rear view mirror, and then they have to lie about it to try to cover up for the massive failure of their B.S. policies.”

And, as Hedgeye CEO Keith McCullough put it: “#InflationAccelerating slows growth. Period.”

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What #ConsumerSlowing Means to Industrials

Takeaway: Rising prices for consumer necessities may be negative for spending on other more discretionary categories.

What #ConsumerSlowing Means to Industrials - 4 15 2014 10 57 45 AM

Overview

The Hedgeye Macro team have presented their 2Q Macro themes and, as usual, it was data rich, timely, and insightful. The Macro Themes calls have too enviable forecasting track record to ignore. Below, we touch on how this quarter’s themes relate to parts of the Industrials sector. The themes of a slowing consumer, structural inflation, and a housing slowdown have implications for the sector and its performance relative to broader indices. We also highlight key transport data that shows broader resilience into 2Q 2014.

 

Commodity Price Divergence

Consumer oriented commodities, such as food/agricultural commodities, have increased much more than many industrial inputs, like copper or oil.  Large supply increases in several metal categories and weaker emerging market demand may be pressuring industrial metals. Rising prices for consumer necessities may be negative for spending on other more discretionary categories. 

 

What #ConsumerSlowing Means to Industrials - eee1 large

 

Capacity Utilization

While some slack remains, corporations have tended to repurchase shares and pay dividends rather than invest in capacity in recent years. Long-term, that may conceptually result in too little of the right capacity in the appropriate places.  One person’s inflation may prove to be another person’s pricing power, potentially benefiting well-positioned manufacturers.  North American heavy truck fleets appear to be a compelling example of this theme, discussed below.

 

What #ConsumerSlowing Means to Industrials - eee2

 

Housing Slowdown

A variety of factors, from new mortgage rules (QM) to higher interest rates, appear to be pressuring housing activity.

 

What #ConsumerSlowing Means to Industrials - eee3

 

Residential Construction

While still posting strong year-on-year growth, there appears to be a deceleration in new residential construction spending.  Weather is a likely contributor, but the broader trends are also potential drivers.

 

What #ConsumerSlowing Means to Industrials - eee4

 

Truckload Rates

Truckload rates have been rising as fleet utilization is at decade-plus highs.  Truckers have been hesitant to invest in capacity growth in recent years. It is a potential positive for PCAR and other Truck OEMs, while likely negative for truckload 3PLs that are structurally short capacity. 

 

Heavy Truck Backlog to Build (North America)

The environment for Heavy Truck OEMs appears better, in part due to higher equipment rates.  However, we would generally see a high reading on this index as an exit signal should it continue to improve.

 

China Exports

Recent increases in the CRB index are particularly noteworthy given signs of weaker Chinese activity.  China is often viewed as the key swing consumer of commodities.

 

Cass Freight Index

The 1.144 March read of the Cass shipment index is at the high-end of its range in recent years.  

 

IATA FTK Growth

International air cargo growth continues to improve, a positive sign for carriers. 

 

Intermodal Rail Traffic

Intermodal traffic has rebounded smartly, partly reflecting better weather through March.

 

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Editor's Note: This is an excerpt of a research note that was originally provided to Industrials Pro subscribers on April 11, 2014 by Hedgeye’s Industrials Sector Head Jay Van Sciver. Follow Jay on Twitter @HedgeyeIndstrls.

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