Front-running A Bad Jobs Report?

Client Talking Points

ASIA

Asia is not a headline story (yet) but our model is signaling multiple breakdowns across Eastern stock markets. Indonesia broke a few weeks ago and India’s (BSE Sensex) recent breakdown was confirmed overnight with another -2.3% drop to -2% year-to-date.  Australia cut rates and its stock market dropped -2.3% (with Commodities up!). The Shanghai Casino Composite is -5.6% in 2 days #MarginCalls.

OIL

Oil experienced an epic 6 month crash, then rally – the inverse correlation between Oil/USD is screaming right now (yes, we know supply/demand narratives help too) with USD signaling immediate-term lower-highs and Oil higher-lows into this U.S. jobs report (bad jobs report = USD bearish, Oil bullish).

RUSSELL 2000

The Russell 2000 does not like Down Dollar, and that makes sense to us as the “tax cut” from lower gas prices is, well, getting cut! This is going to be a problem for a narrative that even Janet Yellen has recently been forced to acknowledge (#StrongDollar, Down Oil, Stronger Consumption). The Russell 2000 is in the midst of a -4.7% correction – overlay that with what’s happening with the USD and you’ll get the point.

Asset Allocation

CASH 53% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
RH

The Russell 2000 does not like Down Dollar, and that makes sense to us as the “tax cut” from lower gas prices is, well, getting cut! This is going to be a problem for a narrative that even Janet Yellen has recently been forced to acknowledge (#StrongDollar, Down Oil, Stronger Consumption). The Russell 2000 is in the midst of a -4.7% correction – overlay that with what’s happening with the USD and you’ll get the point.

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

VIDEO (1min) Get. Out. Of. The. Way. https://app.hedgeye.com/insights/43933-mccullough-get-out-of-the-way… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

One of the facets of extreme originality is not to regard as obvious the things that lesser minds call obvious.

Jack Good

STAT OF THE DAY

New York City Mayor Bill De Blasio is committing $70 million to low-cost broadband access in the city.