Client Talking Points
Expectations for a more dovish Fed at the April 29th meeting took the Euro +2% vs USD last week. The Euro tapped the top-end of its current 1.05-1.08 risk range, and now the EUR/USD backs off -0.5% to 1.07.
If you didn’t know European stocks love Down Euro, now you know. Down Euro this morning = +1.1% DAX (to +20.6% year-to-date), with EUR/USD range bound within a bearish TREND, European stocks (especially German and Dutch) remain bullish from an intermediate-term TREND perspective.
The UST 10YR Yield is at 1.87%, down 31 basis points year-to-date as lower-for-longer continues to get priced in. The German 10YR is at 0.07% and the Swiss 10YR is at negative -0.21% this morning.
|FIXED INCOME||30%||INTL CURRENCIES||7%|
Top Long Ideas
MTW revised down its 2015 guidance for the Foodservice Equipment segment and preannounced a weaker than expected 1Q 2015. Sales in the quarter are a noteworthy miss, but we do not believe that the release has relevance for our sum-of-the-parts valuation thesis, and see many reasons to anticipate stronger operating results in 2H 2015. Basically, we think investors stand to be paid for suffering through this volatility, with potential share price upside on separation ranging from the high 20s to low 40s. Near-term profit weakness is partly why the shares are ‘cheap’, and we think holders may be compensated well for the volatility. The shares are currently trading lower on a weaker than expected 1Q15, but 2Q15 should show improved Crane segment results and 2H should show better Foodservice Equipment results.
iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was mixed in the latest week with the April homebuilder confidence survey (NAHB HMI) putting in a strong sequential improvement, while March Housing Starts were a bit soft. The National Association of Home Builders (NAHB) released its April Housing Market Index survey (HMI) – essentially a survey of builder confidence. The print was strong as it showed a nice bounce across all three survey categories: traffic of prospective buyers, current conditions, and expectations 6 months out. Housing Starts were up sequentially in March, but by less than the market expected. Total Starts rose by 2% to 926,000 (seasonally-adjusted annualized rate) from 908,000 in February.
On the domestic fixed income front we’re looking at lower yields for longer. Lower yields benefit those slow-growth fixed income cash flows tied to the treasury curve (yields down, bonds up). TLT sets-up nicely in a slow-growth, deflationary setting because inflation missing=expectation for even easier policy=more central-planning cowbell=lower yields for longer.
Three for the Road
TWEET OF THE DAY
Our Q2 Macro Theme of #DemographicYields (lower-for-longer) firmly intact @HedgeyeDDale
QUOTE OF THE DAY
Sometimes you don’t realize your own strength until you come face to face with your greatest weakness.
STAT OF THE DAY
2 million high school aged kids in the U.S. smoke electronic cigarettes, according to the CDC.