China, Europe and Global Bond Yields

Client Talking Points

CHINA

Terrible economic data from China leads to the stock market moving higher; China now has a 6% handle on GDP and its PMI for APR (HSBC print) hit a new low of 48.9 (vs. 49.6 last). The Shanghai Composite is up another +0.9% to +38.6% year-to-date.

EUROPE

Forget the average at best economic data, a Down Euro is what European Equities crave – German PMI still blah at 52.1; French PMI terrible at 48.0; Spanish PMI beats (again); DAX +0.9%, Denmark +1.2%, Austria +1.1% as the Euro vs USD risk range widens to its widest in a year at $1.05-1.13.

BOND YIELDS

After a monster move (in % terms) last week, Global Bond Yields are still sticky here this morning – German and Swiss 10YR Yields +1 beep each to 0.37% and -0.01%, respectively – Spain’s 10YR +7 basis points to 1.45% and USA’s = 2.11% with a very wide risk range of 1.86-2.12% ahead of Friday’s jobs report.

Asset Allocation

CASH 41% US EQUITIES 10%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
ZOES

We view ZOES as a very strong long-term investment. Part of what we like about Zoe’s is its strong new unit economics.  Not only does Zoe’s have strong restaurant level margins, but also has best-in-class build out costs and cash-on-cash returns.  In addition, we believe Zoe’s new units are exceeding management’s targets, driven by higher than expected year three average unit volumes. While it may be difficult for some investors to swallow Zoe’s valuation, we believe it represents one of the best early stage restaurant growth chains trading on the public market.  

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. Builder performance was choppy in the latest week alongside beta volatility and investor attempts to square the net impact to housing from rising rates and ongoing improvement in housing fundamentals. As it stands currently, rates remain a tailwind to affordability relative to last year and would require a significant, expedited increase to have a material negative impact on housing activity in the immediate/intermediate term. Elsewhere across Housing Macro, the fundamental data continued to roll in strong.

TLT

Insomuch as the April Jobs Report may prove to be a bearish catalyst for Treasury bonds, slowing growth data over the next two quarters should prove decidedly bullish. Fighting buy-side consensus on the long side of Treasury bonds been a great call thus far so we’d be booking gains and taking down our gross exposure to this asset class on the next immediate-term pop. Ultimately, we think our #LowerForLonger theme prevails, but volatility is likely to pick up in the interim.

Three for the Road

TWEET OF THE DAY

REPLAY: Fed Day Analysis @HedgeyeTV https://app.hedgeye.com/insights/43865-hedgeye-s-fed-day-analysis

@KeithMcCullough

 

QUOTE OF THE DAY

We become what we think about.

Earl Nightingale

STAT OF THE DAY

The top 10 most popular Instagram accounts are all owned by women.


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