CLIENT TALKING POINTS
EURO
The Euro is up +0.6% to $1.14 - two points here: A) the immediate-term risk range is now tightening and B) weak U.S. economic data is Dollar bearish, Euro bullish – is there a case for Euro 1.18-1.19 into the next Fed meeting? Yes – we’re starting to think that’s probable.
OIL
Oil would absolutely love EUR/USD $1.19 – we can get you to $71 WTI on that, so it’s a risk management scenario to consider ahead of a bearish U.S. GDP report on May 29th and the potential for another slowing U.S. jobs report on June 5th (FOMC = June 17th).
CONSUMER
The best sector to be short on the fundamental news yesterday was Consumer Discretionary and earlier this week we signaled SELL on U.S. Retail (XRT) too – Euro up (Dollar Down) + Oil up + tough U.S. consumption comps + labor cycle rollover.
TOP LONG IDEAS
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
The U.S. dollar has gone on a big reversal since the Fed’s March 18th meeting. Since the meeting, the dollar has moved lower and rates higher. This short-term move in rates has caused confusion with respect to our lower for longer call. Put simply, we have been wrong on the direction of our four macro tickers in the newsletter. A continuation of this trend will force us to re-evaluate the longer term call.
Asset Allocation
| CASH | 61% | US EQUITIES | 2% | |
| INTL EQUITIES | 4% | COMMODITIES | 4% | |
| FIXED INCOME | 27% | INTL CURRENCIES | 2% |
THREE FOR THE ROAD
TWEET OF THE DAY
The Macro Show, Live @ 8:30AM ET https://app.hedgeye.com/insights/44089-the-macro-show-live-with-keith-mccullough-today-8-30am-et… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
The trouble with not having a goal is that you can spend your life running up and down the field and never score.
Bill Copeland
STAT OF THE DAY
Americans paid over $44 billion more in taxes during this year's filing than they did in 2014, according to the Congressional Budget Office. Meanwhile, income-tax refunds stayed relatively flat, at $202 billion.