Japan, China and Volatility

Client Talking Points

JAPAN

Japan posted the best Household Spending print of the year at +4.8% year-over-year in May (vs what had been negative year-over-year numbers at -1.3% most recently in April) and now we get another shot at buying more Nikkei post a 2-day correction from our overbought signal (Japanese Stocks remain our top International Equity asset allocation). 

CHINA

Kaboom! Or were those “margin calls”? Down -7.4% in one day for the Shanghai Composite Casino will leave a mark on the chart chasers, who are now down -14.6% in the last month on the same index performance chase. Maybe China shouldn’t have reported a better PMI earlier this week – what they need is horrible economic data to drive that stock market higher?!

VIX

Every time the VIX has tested the 11-12 zone, sentiment gets too bullish (II Bull/Bear Spread popped +25% week-over-week to the #bullish side after the recent SPX rally) and U.S. stocks are right back where they’ve been (SP500 +2.1% on the year with Industrials sucking wind -2.9% year-to-date – Energy (XLE) led losers yesterday -1% to -4.2% year-to-date).

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, with Macro Analyst Ben Ryan and Industrials Sector Head Jay Van-Sciver.

Asset Allocation

CASH 37% US EQUITIES 7%
INTL EQUITIES 12% COMMODITIES 14%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

Shares of Penn National Gaming are up approximately 9% since it was added to Investing Ideas on May 26. Our Gaming, Lodging & Leisure team reiterates their high conviction on the stock and notes that Ohio and Kansas have both been super-strong revenue generators in the month of May. This positive development has has led our analysts to raise their estimates even higher (and we're already the highest on the street...).

ITB

It was a busy week across the housing space with a host of fundamental releases, builder earnings and notable regulatory updates.   Net-net-net....the past week offered another positive update on the state of the residential real estate market with housing turned in a second week of strong, positive absolute and relative performance. The NAHB HMI (Builder Confidence Index) for June surged across all categories and in all regions, posting its best reading in almost 10 years. Total Starts declined -11% MoM to +1.036 MM units with SF and MF starts declining -5.4% and -20.2% month-over-month, respectively.  Permits, meanwhile, rose to an 8-year high advancing +11.8% sequentially and +25% year-over-year.   The strength in permits augurs forward strength in Starts and suggest residential construction spending will be (increasingly) supportive of GDP growth over the next couple quarters.

TLT

Bottom line right now remains that Lower-For-Longer is firmly intact as long as US #GrowthSlowing is. As Keith pointed out on Friday, Consensus Macro is still stubbornly sticking to the tired idea that rates have to go higher - they just have to... because, they haven't? All told, it was a great week sticking with the process on the long side of bonds. Here we feature an in-depth discussion from Senior Macro Analyst Darius Dale which does a thorough job outlining where our macro team currently stands with respect to the Fed, interest rates, markets and economy. The prescient discussion occured just hours before release of the FOMC statement.

Three for the Road

TWEET OF THE DAY

(VIDEO) Me on Industrials: Just Terrible https://app.hedgeye.com/insights/44898-mccullough-on-industrials-just-terrible… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Success is on the far side of failure.

Thomas Watson Sr.

STAT OF THE DAY

The households’ savings rate backed off of 28-month highs, declining -3 basis points month-over-month to 5.1%.


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