Here is the video link:
Here is the video link:
Watch live analysis of the FOMC Statement at 2:15PM ET below.
Topics of discussion:
There will be a Q&A session at the end of the prepared remarks. Simply enter your question(s) anonymously into the chat to have Keith and the team address them.
-The Hedgeye Macro Team
Summary: 1Q GDP was expectedly soft at just +0.2% QoQ while accelerating to +3.0% on a year-over-year basis given the easy comp dynamics. Consumption growth was a relative positive although the large rise in the savings rate drove the weakest print in household spending growth in a year. Energy related Investment got cut in half and the confluence of strong dollar, flagging export demand, and relative domestic economic strength drove a widening trade gap and a -1.25% contribution to growth from net exports. Expect the Fed to acknowledge the softening but maintain policy flexibility by highlighting residual seasonality, externalities and firming inflation expectations.
The Data: C + I + G + NX
Savings Rate: Income ↑, Savings ↑, Spending ↓: Savings Rate ticked up to +5.5% in 1Q15 vs. +4.6% in 4Q14. Aggregate incomes continue to increase but the rising savings rates continues to mute the translation to realized household spending growth.
Inflation: Price softening modestly sequentially but core prices are stabilizing and Fed will looks towards the firming data/outlook
Real Final Sales (GDP less Inventory Change), Gross Domestic Purchases (GDP less exports, including imports), Real Final Sales to Domestic Purchasers (GDP less exports less inventory change) = all decelerating sequentially
POLICY: The net of domestic 1Q Macro data = lower for longer – something the market has been pricing in as we traversed the quarter.
The Fed will moderate its assessment of economic conditions/momentum but will refrain from translating that into an explicit policy conclusion. A host of factors are rhetorically supportive of the Fed’s “transient” view of 1Q weakness including residual seasonality, firming inflation expectations, resumption of west coast port activity, a retreat in the dollar’s ascent and probable sequential improvement in the April employment report.
Residual seasonality in 1Q has been the new normal (ave GDP by Quarter chart below), breakevens have rallied, Core CPI/PCE/Billion prices project have stabilized, the weather drag has reversed (as evidenced in the March/April housing data) and each instance of marked sequential deceleration in net monthly employment gains over the last five years has been followed by a strong rebound in net hiring.
In short, the sequential deceleration in the 1st quarter was real but its magnitude was likely overstated and the Fed has enough fodder to keep its prospective policy path largely unchanged as its data dependency engine trolls for disconfirming/confirming 2Q data.
Christian B. Drake
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Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Takeaway: We are removing Goldman Sachs from Investing Ideas today.
Please be advised that we are removing Goldman Sachs from Investing Ideas today. Shares of Goldman have risen 3.6% since being added on 3/25 versus a 0.78% return for the S&P 500.
Below is a brief note from Hedgeye CEO Keith McCullough on the decision.
* * * * * * *
GS was a catalyst driven way (we thought they’d have a great quarter, and they did) to build up our Investing Ideas list when the US stock market was oversold. Now that a bad headline GDP report and an easier Fed are priced in, I want to reduce the size of the list – and this is one way to express that.
Our fundamental research view on Goldman Sachs (GS) has not changed. This is a portfolio/market timing call. Its generated the alpha we wanted.
The USD is hitting 2 month lows on the combination of what are now consensus expectations for an easier Fed and a big bounce in Greece (stocks v-bottomed off bombed out lows in Athens on the “no exit” headlines); if the Fed isn’t dovish enough today, the USD can easily bounce off this oversold signal.
It is hard to discern whether bonds are front-running a “not dovish enough” Fed, but the levels really matter here as we’ve seen plenty of bounces to lower-highs in rates for the last 16 months. Our immediate-term risk range for the UST 10YR is 1.85-2.02 and that’s as wide as the range has been in 2 months.
Asia experienced one of the weaker sessions in a while with Indonesia down another -2.5% (down -7.1% in 3 days), Australia -1.8%, and India continuing to break down (BSE Sensex is now bearish TREND signal) – Thailand unexpectedly cut rates and stocks dropped -0.8% there too.
|FIXED INCOME||30%||INTL CURRENCIES||4%|
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.
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.
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.
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U.S. Purchase Applications were 0% week-over-week, up +20.8% year-over-year.
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