The UK, Euro and Yields

Client Talking Points

UK

Just an awesome Retail Sales print of +4.7% year-over-year out of the UK this morning (to put that in context, with the same weather, the U.S. posted a 0.9% year-over-year Retail Sales # in April). The Pound is up +0.7% on that to $1.56 vs USD and looks as good as any currency on our screens right now.

EURO

The Euro held the low-end of our $1.10-1.15 risk range and is up +0.5% vs. USD this morning after A) dovish Fed Minutes and B) Hilsenrath parroting the same in the WSJ – this is the headwind to shorting Euros into the June 17th Fed Meeting, a Lower-For-Longer Fed; German data continues to slow. 

10YR YIELDS

Global Yields are trading like Pac-Man still but lower-highs remains the longer-term picture. The UST 10YR dropped -3bps to 2.22% this morning and really has no support to 1.97%; German, Italian, and Spanish 10YR Yields all -2-3 basis points as the ECB has front-loaded its QE to May-June.

Asset Allocation

CASH 48% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 12%
FIXED INCOME 26% 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 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

GOLD: still looks good +0.1% to $1210/oz this am - no resistance to $1240 $GLD

@KeithMcCullough

QUOTE OF THE DAY

There is no royal road to anything. One thing at a time, all things in succession. That which grows fast, withers as rapidly. That which grows slowly, endures.

-Josiah Gilbert Holland

STAT OF THE DAY

Australians are the most confident they’ve been since January 2014 after the central bank cut interest rates and the government announced a A$10 billion ($7.9 billion) boost for families and small businesses.

 

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