Yields, Europe and India

Client Talking Points

UST 10YR

The UST 10YR move is getting a lot of coverage obviously, but it’s hard to believe consensus still isn’t contextualizing it within the broader move in Global Yields – this is massive volatility for sovereign bonds – on the day UST 10YR Yield +3bps, JGB +6bps, Bund +7bps, France +9bps, Spain +13bps. We didn’t nail this one. Looks #behavioral at this stage to us #charts.

EUROPE

If you can’t make money in stocks or bonds, what do you do? This is one of the main reasons for raising cash to the highest level (Hedgeye Asset Allocation Model) of the year. European stocks continue to break our immediate-term TRADE lines of support with the DAX leading losers this morning down -2.3%. If Mario Draghi lets Euro rates do this, he’ll let stocks drop faster. 

INDIA

India is one of the few markets that has been flat out weak throughout the year, irrespective of global bond/stock market moves. The BSE Sensex failed to recover @Hedgeye TREND support on the bounce last week, it is down -1.9% overnight to -1.8% year-to-date = Global #GrowthSlowing.

 

Asset Allocation

CASH 62% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 2%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
VNQ

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The highly anticipated Non-Farm Payrolls report came and went Friday, and it was largely a non-event. The change in non-farm payrolls was +223K vs. consensus estimates of +228K for April. Considering last month’s report was a bomb (revised to 85K from 126K), April had an easy comp. Our thesis on interest rates remains lower-for-longer, but that view is being tested in the short-term.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. It was a relatively light data week for housing with weekly mortgage application data and the March employment report offering incremental updates on the current state of housing demand.  On the market side, interest rate volatility remained a concern for the public homebuilders but one we believe remains shorter-term in nature absent another expedited, step function increase in interest rates. We think the rate related pressure will be largely transient unless we see a further back-up in mortgage rates on the order of +50-100bps from here – a potentiality we would not view as probable at this point. On the fundamental side, the drumbeat of improvement remains ongoing.

TLT

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. It was a relatively light data week for housing with weekly mortgage application data and the March employment report offering incremental updates on the current state of housing demand.  On the market side, interest rate volatility remained a concern for the public homebuilders but one we believe remains shorter-term in nature absent another expedited, step function increase in interest rates. We think the rate related pressure will be largely transient unless we see a further back-up in mortgage rates on the order of +50-100bps from here – a potentiality we would not view as probable at this point. On the fundamental side, the drumbeat of improvement remains ongoing.

Three for the Road

TWEET OF THE DAY

MUST SEE TV

Hedgeye CEO @KeithMcCullough joins @MariaBartiromo on @FoxBusiness @OpeningBellFBN at 9:00am.

@Hedgeye

QUOTE OF THE DAY

I know nothing with any certainty, but the sight of the stars makes me dream.

-Vincent van Gogh

STAT OF THE DAY

China's Shanghai Composite Casino tacks on another +1.6% to +36.1% year-to-date (as Chinese growth slows).