Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Takeaway: US & China Footwear & Apparel e-Commerce demographics. Tesco turns to suppliers for help. TGT Canada liquidation getting tricky.
EVENTS TO WATCH
CHINA vs. US: Footwear & Apparel e-Commerce Breakdown
This is a topic we've hit pretty hard over the past few months in our recent Black Books looking at the space. We did our own consumer survey on the topic, and while our results were in line with the info pertaining to the United States, here is an interesting look at the differences in demographic spending patterns in the US and China on footwear and apparel. For context, the online US footwear and apparel business was a $37bil industry in 2013 (10% penetration) and China grew at a 178% CAGR over the past 5 years to $33bil (11% penetration). A few of our takeaways...
TSCO - Tesco tells suppliers to cut prices as commodities slump
Takeaway: When this flashed across our radar this morning it smelled a lot like TGT-Canada's plea for concessions from its suppliers in late July. While it's not unusual for a retailer to ask for vendor support, this, like the TGT ask, looks to be coming from a position of weakness rather than strength.
TGT - Target sale fail? Disappointed shoppers can expect deeper discounts ahead
Takeaway: This is where the Canada closure starts to get tricky. The US parent has severed ties with the red headed step child in the Great White North, but how will the company's relationships in the US be affected because of this? After years of promises from TGT and doubtless concessions by the suppliers we've got to believe that things are a little bit testy. It's no wonder that TGT Canada is treading lightly on thin ice when it comes to its liquidation sales. This is just one example, but telling of TGT's precarious spot. iPad's are discounted just 5% - if that goes higher we could see AAPL take it out on the US business when it plans its next round of allocations.
JCP - J.C. Penney partners with InStyle on new in-store salon concept
OVS Heads for IPO
Sweaty Betty Receives Catterton Investment
WBA - Walgreens introducing new beauty brand
BWS - Ex-Victoria's Secret CEO joins Brown Shoe board
WFM - Whole Foods, Instacart partner on same-day floral delivery
Guggenheim and Affiliates Invest $135M in BCBG
SPLS - Staples launches new omnichannel small business campaign Feb. 8
02/04/15 CMG: Look Past the Near Term Noise
02/05/15 YUM: In Need of a Nudge
Monday, February 9th
Tuesday, February 10th
Wednesday, February 11th
Thursday, February 12th
Friday, February 13th
Monday, February 2nd
Tuesday, February 3rd
Wednesday, February 4th
Thursday, February 5th
Friday, February 6th
The XLY (+4.2%) outperformed the SPX (+3.0%) last week. Both casual dining and quick service stocks, in aggregate, underperformed the XLY.
From a quantitative perspective, the XLY remains bullish on an intermediate-term TREND duration.
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Takeaway: Today we show why we think investors should be actively managing interest rate risk on much shorter durations for at least the next ~6-8wks.
THEMATIC INVESTMENT CONCLUSIONS
Long Ideas/Overweight Recommendations
Short Ideas/Underweight Recommendations
QUANT SIGNALS & RESEARCH CONTEXT
Revisiting Our #Quad414 Theme Because the January Jobs Report Told Us To: Obviously the JAN employment report was really good – not just relative to consensus expectations, but due to massive positive revisions in the NOV and DEC payrolls growth numbers and a +30bps bump in wage growth to +2.2% YoY (CLICK HERE for our full synopsis).
The headline Nonfarm Payrolls growth figure slowed to +257k MoM from an upwardly-revised +329k in DEC. One month does not a TREND make, however, and we all know payrolls growth north of +300k is generally unsustainable. A growth rate of +257k is solid (i.e. in the 87th percentile of all readings over the trailing 10yrs) and speaks volumes to the pace of economic growth that my ultimately be reported in Q1.
This we know: the Q1 GDP comp is very easy and growth in both aggregate nominal income and average real incomes are accelerating on both a sequential and trending basis.
This we also know: we haven’t received a lot of meaningful economic data for the first quarter yet, but of the data points we have received, all are showing either continued sequential and/or trending accelerations (consumer confidence, employment) OR inflection/stabilization from a trend of deceleration (Markit PMI, ISM PMI).
It’s still very much early innings as far reported Q1 data is concerned, but growth bulls have to like what they’ve seen thus far for the month of January. It’s been a while…
As far as the key risk we outlined in our #Quad414 theme is concerned: will one-day bearish TRADES in fixed income and bond-like equities start to TREND – assuming that Friday’s market reaction was no aberration?
We don’t know for sure but our Real-Time Alerts signals on Friday would suggest which answer we think is most probable from these prices:
In the interest of remaining transparent and accountable, it’s worth noting that we positioned for a Treasury bond rally into the Jobs Report as well, so we’re wrong on that for a day:
All told, to the extent our #Quad414 theme continues to play out as planned, it’s much harder for an investor to justify a buy-and-hold strategy in TLT, EDV, MUB, ZROZ, VNQ, XLU, XLP and XLV here. As such, we think investors should be actively managing interest rate risk on much shorter durations for at least the next ~6-8 weeks.
***CLICK HERE to download the full TACRM presentation.***
TRACKING OUR ACTIVE MACRO THEMES
Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.
#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.
Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014. 2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.
Best of luck out there,
Associate: Macro Team
About the Hedgeye Macro Playbook
The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.
Takeaway: A good jobs report lifts the U.S., while investor concerns over Greece are isolated to Greece.
Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor". If you'd like to receive the work of the Financials team or request a trial please email
Last week saw two notable events on the Macro risk front: 1) The ongoing game of bailout-chicken being played by Greece and the EU and 2) the labor market report on Friday. The favorable U.S. jobs report lifted domestic markets, as, apparently, good news has become good again. On the other hand, with the announcement that the ECB will stop accepting Greek bonds as collateral, spreads on EFG Eurobank Ergasias blew out by +626 bps. Interestingly, investors still perceive Greek risk as isolated to that country; European swaps at the median tightened by -2.6%.
European Financial CDS - Swaps mostly tightened in Europe last week. The big news for the week was that the ECB will stop accepting Greek bonds as collateral. Given that announcement, EFG Eugobank Ergasias swaps widened by a massive +626 bps.
Sovereign CDS – Sovereign swaps were little changed on the week with the largest moves coming from Portugal (-4 bps to 180 ) and Spain (+7 bps to 94).
Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 10 bps.
Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.
1. CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.
2. Spot – Second Month Spread: Measures the market expectation for forward looking prices in the near-term.
3. Spot – 1 Year Spread: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.
4. Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.
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.