TODAY’S S&P 500 SET-UP – June 6, 2014
As we look at today's setup for the S&P 500, the range is 45 points or 2.19% downside to 1898 and 0.13% upside to 1943.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
Takeaway: 82% said NO; 18% said YES.
Economists are expecting tomorrow’s employment report to show 210,000 jobs were added to the U.S. economy in May.
Today’s poll question was: Do you trust the government’s employment numbers?
At the time of this post, 82% said NO; 18% said YES.
Here’s what those who voted NO had to say:
Conversely, this YES voter disagreed, saying that "while it's easy to poke holes and you are maybe right to be skeptical being correct on economic data only gets you so far. You must understand how the market will react to said economic data which gets increasingly complicated if you do not believe headline numbers the market is reacting to."
Likewise, another YES voter said, "It has been wrong all along, but as long as it's been consistently wrong. Why not?"
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The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting an expert call featuring Professor Charles Hill tomorrow, June 6th at 10:30am EDT. Professor Hill is a diplomat in residence at Yale University where he teaches Grand Strategies.
To gain a better understanding of the key foreign policy risks on the horizon that may have an impact on global markets.
Professor Hill is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz. He also served as a special advisor to U.N. Secretary General Boutros-Boutros Ghali.
KEY TOPICS WILL INCLUDE:
What does the election of Bashar Hafez al-Assad in Syria mean for the West?
ABOUT PROFESSOR CHARLES HILL
Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz. Dr. Hill has been a fellow at the Harvard University East Asia Research Center, a Clark fellow at Cornell University, and is currently a research fellow at the Hoover Institution.
He served as special consultant on policy to the secretary-general of the United Nations from 1992 to 1996. Dr. Hill has collaborated with former U.N. Secretary General Boutros Boutros-Ghali on Egypt's Road to Jerusalem, a memoir of the Middle East peace negotiations, and Unvanquished, about U.S. relations with the U.N. in the post-cold war period. He is also the editor of the three-volume Papers of U.N. Secretary-General Boutros-Ghali, published by Yale University Press.
His book "Grand Strategies: Literature, Statecraft and World Order" is published by Yale University Press. His "Trial of a Thousand Years: Islamism and World Order" is published by the Hoover Press, Stanford University. He received an A.B. degree from Brown University in 1957, a J.D. degree from the University of Pennsylvania in 1960, and an M.A. degree in American studies from the University of Pennsylvania in 1961.
Takeaway: A second week of accelerating improvement brings rolling non-seasonally adjusted claims back to best levels YTD.
Headline claims increased +8K week-over-week to 312K with the four-week rolling average declining another -3K sequentially to +310K. Non-seasonally adjusted claims, which we consider a more accurate representation of the underlying labor market trend, came in at -10.8% year-over-year (vs. -13.8% prior) with the four-week rolling average improving 160 basis points sequentially to -11.3% year-over-year.
The rate of change in year-over-year, rolling non-seasonally adjusted claims improved to its best level in seven weeks and is near its best level YTD while rolling seasonally adjusted claims hit their lowest level since June 1, 2007.
We typically look at the slope of improvement as our indicator on the prevailing trend in the labor market. Historically, however, the 300K level has served as the lower bound in seasonally adjusted claims during expansionary periods. At this week's reading of +310K we continue to converge toward that frictional lower bound and expect the rate of year-over-year improvement to slowly converge toward 0% as well.
On balance, the domestic macro data has been better sequentially quarter-over-quarter, but outside of the discrete ramp in Auto Sales in May, there hasn’t been much evidence of material deferred demand from 1Q coming back in 2Q.
The national and regional manufacturing surveys have been ‘good’ and the labor market data (ADP was soft but the trend in claims remains positive) has been stable-to-better.
However, April retail sales were weak, consumer spending in April was particularly soft, the trade balance for April was worse than estimates (with March revised lower, taking 1Q GDP further negative), and the housing data remains in conspicuous deceleration.
From a policy read-through perspective, the positive momentum in the labor market along with the broader, sequential improvement in the domestic macro data off the 1Q14 weather distortion suggests the inertia is still with continuing on the present policy course.
The improvement in claims also bodes well for the May employment report. While seasonally adjusted claims reported during the BLS survey period were less good than the most recent two weeks, on balance, the May claims data is supportive of a good nonfarm payroll print.
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Editor's Note: This is an excerpt of a research note that was originally provided to subscribers on June 5, 2014 at 10:29 a.m. EST by Hedgeye macro analyst Christian Drake. Follow Christian on Twitter @HedgeyeUSA.
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