The Economic Data calendar for the week of the 6th of April through the 10th of April is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
CLICK TO ENLARGE.
It’s always hard to take a convicted view of a single month of data in isolation but there was little to celebrate in the March employment report. Total Nonfarm payrolls recorded their softest sequential gain since December of 2013, Jan/Feb saw a net negative revision of -69K, hours worked slowed by 0.2%, the breadth of industry employment gains declined and the Unemployment rate held flat for the wrong reasons.
The primary bullish rejoinder to march’s weak print is that weather played an outsized factor and similarly soft gains observed in Dec/Jan of last year were followed by the strongest annual gains in two decades. Further, while the +126K monthly gain in March was well below the TTM average of +269K, year-over-year growth in payrolls held near cycles highs at +2.27% YoY and was flat at 1.99% on a 2Y basis. We are in the twilight of the current expansion and whether the March data was simply a hiccup or a more ominous harbinger of things to come remains TBD>
Average hourly earnings in the private sector accelerated +10 bps sequentially to +2.1% YoY. However, earnings for nonsupervisory and production employees – which BLS estimates to be ~80% of the workforce – grew just 1.8% YoY, marking the 3rd month in 4 of sub 2% growth. While labor slack continues its slow march towards tautness, both wage and broader inflation continue to elude policy makers.
The U-3 Unemployment rate held flat at 5.5% while the U-6 rate (underemployment Rate) ticked down 10.9% from 11% - although it was largely negative fundamental developments that drove the stability/improvement as the flow of workers from unemployed to out-of-the-labor force rose and the labor force participation rate declined.
Job loss in the energy sector stabilized in March – at least according to BLS and Challenger Job Cut data. Oil & Gas extraction employment - which includes data thru March - saw a marginal increase in employment (following 3 consecutive months of job loss) in the latest month. Broader energy sector employment - data thru February – played catch-up, declining by -17K sequentially with the rate of YoY growth dropping 290bps sequentially to +1.2% - the slowest pace of growth in 56 months. So, while the energy sector has, in fact, been a source of relative weakness in recent months, it was not a driver of deceleration in March. With Energy state initial jobless claims accelerating in the latest week, however, we do expect further net declines in industry employment in the coming months.
An estimated 182K workers missed work due to severe weather in March. This compares with 148K last year and a trailing five year average of 130K so weather may have served as a modest drag – (recall that the BLS survey is conducted during the pay period including the 12th of the month and temperatures and initial claims were worse during this period than for the month on average)
Key housing employment demographics remained solid in March and should continue to flow thru to housing demand at a modest rate. We continue to like housing on the long side.
Manufacturing employment declined for the first time since july of 2013 as the confluence of strong dollar, declining export demand, lower energy sector investment, and residual port shutdown impacts continue to weigh on the industry. The softness was not unexpected given the lackluster gain in February and the slowdown observed in the ISM employment sub-indices.
With global deflation/disinflation predominating, Japa-German yields anchoring the U.S. 10Y and a strong probability that Fed policy normalization drives a flattening in the curve we think the long-bond (TLT) continues to perform under most immediate/intermediate term macro scenario’s.
This note was originally published at 8am on March 20, 2015 for Hedgeye subscribers.
“It was the transformation of the ocean from a death sentence to a sort of giant river.”
After a mentally exhausting month on the road where I was debating investors on what the Fed could and should do, now we have the proverbial giant macro river card priced into the marketplace, and I can go back to reading my books and brackets.
Since my NCAA brackets are basically an uneducated guess from a 5’9 right-hand-only-dribble-Canadian who doesn’t know the difference between the SEC and whatever division UAB played in this year, my picks did well yesterday.
Go figure. Guessing works some of the time – but it gets you run over in macro markets most of the time. So let’s go back to analyzing the transformation of an interconnected, but non-linear, global currency, commodity, fixed income, and equity market.
Back to the Global Macro Grind…
The transformation of the oceans (across the last six centuries) is a fantastic metaphor for macro markets to consider as you watch your basketball brackets this weekend. If you’re not into doing either – let me save you the required reading and give you the history point:
“The most lasting impact of the deep water revolution, wasn’t the shifting of the spice trade, the fall of the Ottomans, or even the rise of the British Empire… Deepwater navigation cracked the world open, launching the Age of Discovery, which in turn condensed the world both culturally and economically.” (The Accidental Superpower, pg 31)
Never mind not having a modern day #process to contextualize and risk manage the oceans. Trading macro used to be a death sentence for people who A) didn’t have live quotes and/or B) liquid macro securities that helped them express their macro themes.
Today, all of that has changed. Currency markets are some of the deepest and most liquid in the world – and most central planners wake up every morning looking for ways to manipulate them.
Last night, BOJ (Bank of Japan) overlord Kuroda was trying to jawbone the Yen lower by suggesting he could come up with some moarrr “innovative monetary policy.” What he meant by that is he can do moarr and moarrr of what has not worked, and take Japan’s annual money printing from 80-90T Yen to something greater than 100 TRILLION Yens…
Yeah, these guys are totally awesome. As they are blowing up the purchasing power of The People, they are providing us an excellent map of how to navigate the River Alpha of Global Macro returns.
How did Kuroda impact macro markets?
Oh, then Draghi woke up and gave the Greek guys a buzz telling them to just float it out there that they are “feeling confident” about their talks with the Germans:
This is, of course, the problem with trying to centrally plan your own domestic waterways as the rest of the world is trying to boil the currency ocean. If your “policy” is linear and local in its design, it’s going to get wiped out by non-linear global macro risks.
“So”, Janet, while I’m a fan of the no policy mistake move this week… and I think that the move you made on the non-impatience vs. “patient” was cute… in trying to devalue the Dollar from here, I think you’re up this river without a paddle until you make your next move.
How do we invest in these #StrongDollar + Down Rates Global Macro waters? No real change from where I’ve been:
And in FX and Fixed Income you obviously own what the long-term investors in Global #Deflation and #GrowthSlowing do – US Dollars and Long-term Treasuries. It’s a Giant Macro River, and I’m happy owning the deepest and most liquid parts of it.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.91-2.05%
Best of luck out there today and have a great weekend,
Keith R. McCullough
Chief Executive Officer
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Tuesday, April 7th at 11:00AM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.
Q2 2015 MACRO THEMES OVERVIEW:
#LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest. We’ll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.
#DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the “secular stagnation” thesis most recently highlighted by Bernanke’s blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...
Oil’s #DeflationDeck: Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation’s dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into
Takeaway: We’re hosting a call on Wednesday, April 8 at 1:00pm EST. Dial-in details and associated materials to follow.
We are adding ZOES to the Hedgeye Best Ideas list as a long.
Standing Out From the Crowd
After coming down hard on NDLS, CHUY, PBPB, DFRG and SHAK over the past year, it’s probably apparent that we have a strong bias against “high growth” restaurant companies that have recently come public. Rest assured this bias has not detracted from our research process. In fact, this prior work in the small cap restaurant field has allowed us to identify a company that we believe is distinctly different from the rest – which, if you’re familiar with our work, can only be construed as a good thing.
We like ZOES on the long side for many reasons, including its:
There is little competition in the Mediterranean category which directly appeals to the health conscious millennial crowd and has the potential to become America’s next big cuisine. Due in large part to a best-in-class management team and operating philosophy, we believe ZOES will be able to grow with minimal roadblocks.
Please join us on Wednesday as we walk through the intricacies of our call in a detailed Black Book.