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Client Talking Points

USD

The 1-day drop in the EUR/USD on the European central plan to “front-load” QE shows little to no follow through this morning, and the European Equity market doesn’t appreciate that. The USD Index has plenty of resistance at around 96 (that’s also the low-of our EUR/USD 1.10-1.14 immediate-term risk range).

OIL

We made an intraday call to buy Oil on the Up Dollar commodities pullback yesterday as WTI was signaling immediate-term TRADE oversold. WTI experienced a +1.5% bounce this morning to $58.83 and has no resistance to $61.37. Your catalyst on Down Dollar, Up Oil is the May 29th U.S. GDP report, then the June 5th jobs report (Fed meeting June 17th should be dovish too). 

DAX

The German DAX doesn’t show any follow through this morning as the German economic data continues to be weak (yesterday was a ZEW miss/slowdown; this morning it’s a -1.5% year-over-year PPI which is somewhat deflationary); German stocks are on our buy list, but they don’t have to be forever; watching how they act very closely here.

Asset Allocation

CASH 52% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 10%
FIXED INCOME 26% INTL CURRENCIES 0%

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 reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.

ITB

The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54.   Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  Further, at  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.

TLT

The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road

TWEET OF THE DAY

VIDEO (2mins) 'There's No Inflation, But It Costs $127,000 to Go to Harvard for Two Years' https://app.hedgeye.com/insights/44189-mccullough-there-s-no-inflation-but-it-costs-127-000-to-go-to-harv… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

 

STAT OF THE DAY

2-to-3 are the early odds on American Pharoah winning the Belmont Stakes and capturing the first Triple Crown since Affirmed in 1978.