Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted their quarterly Macro Themes conference call in which they detailed their Top 3 Global Macro Investment themes for 1Q14. The Replay and Presentation Materials can be accessed via the links below.
#InflationAccelerating: Across the globe, reported inflation readings are poised to accelerate from post-crisis lows as easy comps, a commodity base effect and accelerating wage pressures all come to a head in the first quarter of 2014. Moreover, the reemergence of inflation as a core macro risk threatens to materially alter the investment landscape going forward.
#GrowthDivergences: Looking to the U.S., Europe, China and Japan, we see the heavyweights of the world economy diverging from an economic growth perspective as some countries and/or regions are much further along in the economic cycle than others. We highlight those divergences and identify which countries and/or regions you want to be allocating assets to at the start of the year.
#FlowShows: in Q1 we expect a continuation of fund flows out of fixed income and into equities: the "Queen Mary" has indeed turned, aided by the Fed's decision to begin tapering.
- Hedgeye Macro
- This morning the ECB announced no change to its main interest rates (as expected – we also didn’t think a 25bps cut was warranted in the NOV ‘13 meeting).
- President Draghi reiterated his inflation and economic forecast from last month.
- Draghi reiterated that the Eurozone may experience a “prolonged period of low inflation” and the Bank would maintain accommodative monetary policy for “as long as is necessary” and to expect that key rates would remain “at present or lower levels for an extended period of time”.
- Note that Latvia is now the 18th country to join the Euro.
- To read a copy of Draghi’s prepared remarks click here.
- As we discussed in a European data update note yesterday, our preferred investment in the region is long German and UK equities (EWG and EWU) and long the Pound/USD (FXB) – note that today the BOE also left the main interest rate unchanged (at 0.50%) and maintained the asset purchase target (as expected), which is supportive of our long call.
- Broadly, we believe Draghi’s continued posture of “ready and willing to act” (to ensure the survival of the Eurozone at any cost and keep financial conditions accommodative) will continue to support the common currency and strengthen investor confidence in the equity market.
- EUR/USD: we expect Yellen to be a continuation of Bernanke’s dovish monetary policy, yet there was a hawkish tone to the Fed minutes this week which cautions our previous #EuroBull outlook. We’ll be dependent on our quantitative lines (see levels below) to determine how to position ourselves from here.
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While well known, Q4 earnings should be terrific. WYNN should lead the pack.
- The charts below highlight our Macau property estimates and company EBITDA estimates relative to the Street
- We’re projecting the most upside in Macau EBITDA for WYNN (2nd highest upside for company EBITDA) despite lower than normal VIP hold
- MPEL could post the biggest beat with hold only slightly higher than normal
- We’re projecting 20%+ GGR growth for Macau in January and February and if we’re right, Q1 estimates will need to be raised as well
Takeaway: A watershed year in the shift from "bricks and mortar" to dot.com.
With virtually every single retailer posting disappointing sales, we wanted to highlight a crucial factor we believe is of paramount importance.
It is our view that this holiday will go down as a watershed year in the shift from "bricks and mortar" to dot.com. (Yes, we get that the weather was terrible as the month closed out and got worse in January.)
The chart above clearly shows the steady increase over the past decade in e-commerce's share of total spending.
Bottom line? We think when this quarter's numbers are reported, it will reveal the greatest increase in the slope in the the history of the Internet.
Our belief is that shopping is ultimately behavorial. An increase in dot.com will only feed upon itself and continue to gain share in 2014 and ensuing years.
This is an excerpt of Hedgeye Risk Management research. For more information on how you can subscribe to Hedgeye please click here.
Takeaway: With this week's print we now have a pretty solid picture of how the labor market is faring in real time.
Better Data Equals More Upward Pressure on Rates
This most recent week brings to three the number of "clean" data weeks that have no been strung together. Our ability to contextualize what's happening in the labor market, as a result, is improving. In the last three weeks we've seen a strong and accelerating rate of year-over-year improvement in the non-seasonally adjusted initial jobless claims data. This most recent week was better by 12.9% y/y while the two preceding weeks were stronger by 8% apiece, on average.
As we've been saying for some time now, the upward trajectory in the labor market will continue to exert upward pressure on the long end of the yield curve, which will help banks and hurt housing volume-sensitive stocks. We see no reason to expect this trend to change in the coming few months. In fact, the trend in the SA data should continue to accelerate as legacy seasonality distortions continue to ramp us a tailwind through the February/March timeframe.
Prior to revision, initial jobless claims fell 9k to 330k from 339k WoW, as the prior week's number was revised up by 6k to 345k.
The headline (unrevised) number shows claims were lower by 15k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -9.75k WoW to 349k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.1% lower YoY, which is a sequential improvement versus the previous week's YoY change of -1.7%
The 2-10 spread fell -9 basis points WoW to 256 bps. 1Q14TD, the 2-10 spread is averaging 257 bps, which is higher by 17 bps relative to 4Q13.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
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