Is An Easier Fed Already Priced In?

Client Talking Points

JAPAN

It’s a good thing 80-90 Trillion in QE is working – Japanese Retail Sales are down -9.7% year-over-year in MAR vs -1.7% in FEB and the Weimar Nikkei goes up on that, of course. The Nikkei is up +0.4% to +15.6% year-to-date pre the BOJ meeting.


USD

A Lower-For-Longer Fed may be priced into stocks, but it’s not yet fully priced into USD – that’s down again this morning with the EUR/USD +0.2%, tapping the top-end of our 1.06-1.09 risk range. If the Fed says anything remotely hawkish vs. expectations, USD can easily have a big move on the “news” from here.

UST 10YR

Has a yield of 1.93% priced the Fed in? It is hard to tell as it’s been hanging out in the middle of its 1.86-1.99 risk range for the last week, and then we have the jobs report to deal with on May 8th (which could very well be hawkish, on the margin versus the last one) – lots to think about short-term.

Asset Allocation

CASH 38% US EQUITIES 13%
INTL EQUITIES 16% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
MTW

Has a yield of 1.93% priced the Fed in? It is hard to tell as it’s been hanging out in the middle of its 1.86-1.99 risk range for the last week, and then we have the jobs report to deal with on May 8th (which could very well be hawkish, on the margin versus the last one) – lots to think about short-term.

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

The Macro Show, Live with Keith McCullough at 8:30AM ET https://app.hedgeye.com/insights/43749-the-macro-show-live-with-keith-mccullough-at-8-30am-et… via @hedgeye

 @KeithMcCullough

QUOTE OF THE DAY

The important thing is this: to be able at any moment to sacrifice what we are; for what we could become.

Charles Dubois

STAT OF THE DAY

68, the total number of ingredients required to make all the items on the menu at Chipotle.