Pricing in An Easier Fed

Client Talking Points

CHINA

New 7-year high - epic ramp continues with the Shanghai Composite up another +3% overnight = +40% year-to-date and +96% since OCT 2014 as speculation runs rampant about precisely what at this point, we do not know!

EURO

EUR/USD backs off -0.3% this morning after rallying to the top-end of its immediate-term risk range (now 1.06-1.09), the Euro is +1.3% in the last month vs. USD as the world prices in an easier Fed at the Wednesday meeting.

S&P 500

The U.S. stock market (and its volatility) likes the expectation of the Fed being easier, on the margin – at +1.8% for the week with Tech and Consumer Discretionary leading the rally (+3.2-4.0% week-over-week) the obvious question is what is priced in now that we’re back at the all-time highs?

Asset Allocation

CASH 31% US EQUITIES 15%
INTL EQUITIES 17% COMMODITIES 4%
FIXED INCOME 30% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
MTW

The Dodge Construction Starts Index accelerated at its highest rate since 1982. The index was driven largely by non-building projects, which was 74% higher for the first three months compared to last year. The Architecture Billings Index (ABI), a survey of architects, increased ~3% month-over-month and ~5% year-over-year for March. The ABI Index typically leads nonresidential and residential construction spending by 9-12 months. More importantly, the ABI Index leads Manitowoc Crane Orders by 2 quarters. This suggests MTW’s crane sales should see a pickup in the first half of the year. MTW reports April 29th after the close. Earnings Call will be held at 10:00am eastern time the following day.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. Housing went 4 for 4 in a data heavy calendar for the sector this week with demand improving across both the new and existing markets and the fledgling acceleration in price growth finding some positive confirmation. The builder stocks had a choppy week of performance as investors held mixed opinions of earnings reports and management commentary out of DHI and PHM but, from a fundamental data perspective, the Trend remains one of discrete improvement.

TLT

Ten-year rates dipped 12bps on the week (forward-looking growth expectations) and the USD got crushed for a 1.5% loss. Growth and inflation expectations get priced in AHEAD of the more dovish policy tone resulting from any sign of deterioration in the labor market. Wednesday’s Fed meeting will be the next catalyst that will steer the market’s expectation on forward-looking growth and inflation. We expect the dots (forward-looking federal fund rate expectations) to be pushed out….again.

Three for the Road

TWEET OF THE DAY

TREASURIES: 1.91% 10yr (after starting the yr at 2.17%) as Lower-For-Longer gets priced into Fed expectations

 @KeithMcCullough

QUOTE OF THE DAY

Treat a person as he is, and he will remain as he is. Treat him as what he could be, and he will become what he should be.

Jimmy Johnson 

STAT OF THE DAY

Branded-drug prices have increased 127% since 2008, compared to an 11% rise in the consumer price index (according to Express Scripts Co.).