Less Market Volatility (For Now)

Client Talking Points

USD

One big cross asset class reset continues this morning with Dollar Down (EUR/USD Pain Trade Up), Yen Up, Nikkei Down – Gold stabilizing and holding our $1150-1170 zone of support – it likes Down Dollar, Down Rates.


RATES

Down -27 basis points for the UST 10YR Yield in a week to 2.27% now so we’re glad we didn’t capitulate and chase the charts as the fundamental research call didn’t support doing that; 2YR Yield backs off hard (for the 3rd time from 0.75% since DEC) to 0.64%.

EQUITIES

Now this gets interesting as both Japanese and European stocks do not like their respective currencies strengthening whereas yield chasers in the U.S. do – so U.S. futures will have to deal with overseas weakness, as a result of a more dovish Fed.

 

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Asset Allocation

CASH 40% US EQUITIES 6%
INTL EQUITIES 11% COMMODITIES 13%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

Penn National Gaming will likely tee off on the bears with a strong Q2, upward 2015/2016 EPS revisions, and the start of a 2 year growth period. PENN’s stock has climbed 27% this year on stabilizing regional gaming revenues, transaction-fueled optimism (real estate) surrounding the regional gaming companies and proximity to the opening of the new Plainridge racino on June 24. So what will drive even more upside? More and better. We think regional gaming trends are even better than anticipated by the Street and Q2 earnings should be a solid beat even before Plainridge contributes.

ITB

Housing outperformed in the latest week alongside choppy price action in equities and further, extraordinary volatility in sovereign bond markets.  Fundamental data was light with weekly purchase applications data from the MBA the lone release of import for the industry.  The first, high-frequency update on purchase demand in June, however, was positive. Purchase demand rose +9.7% sequentially, taking the index to its strongest level in 2 years at reading of 214.3. On a year-over-year basis, growth accelerated for a  4th consecutive week to +14.6%. Inclusive of last weeks gain, demand in 2Q is tracking +14.3% QoQ and +13.4% YoY.

TLT

The market has been jockeying for positioning in front of next week’s policy statement from Janet Yellen. We believe Yellen signaling that she remains “data dependent” (i.e. repeats what she said at the March 18thmeeting) is the most probable outcome. To be clear, we remain the long-bond bulls (TLT, EDV, MUB). With that being said we aren’t claiming to be able to predict the outcome of next week’s meeting (sure we do have biases). What we do know is that Hedgeye estimates for growth and inflation shake out much lower against both consensus and central bank forecasts for the full year 2015 (remember that this is after their forecasts have already been downwardly revised).

Three for the Road

TWEET OF THE DAY

Japanese real wages continue to see no growth, -0.1% y/y

@KeithMcCullough

QUOTE OF THE DAY

The winner's edge is not in a gifted birth, a high IQ, or in talent. The winner's edge is all in the attitude, not aptitude. Attitude is the criterion for success.

Dennis Waitley

STAT OF THE DAY

8.1 million people tuned in for HBO’s “Game of Thrones” finale on Sunday, a record for the show.