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USD, Oil and Japan

Client Talking Points

USD

Down Dollar is what that ole “reflation” hope is built on and you’re seeing some follow through there this morning with the EUR and YEN  up +0.4-0.5% against the USD. But a bullish TREND in the USD remains firmly intact, the risk range is 97.13-99.41.

OIL

Oil up +4.8% in a straight line yesterday led the rally in oversold #Deflation equities – that move does not a bullish TREND make with the immediate-term risk range for WTI now at $34.94-38.08 (sell at the top-end of the range).

JAPAN

Japan doesn’t like this whole up Yen (Down Nikkei for the 5th straight day), so BOJ’s Kuroda opts for the Draghi “whatever it takes” speech overnight saying they’ll even “buy ETFs” (equities!) directly, LOL.

Asset Allocation

CASH 66% US EQUITIES 2%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 17% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
FII

Federated Investors (FII) profitability got a boost last week as the Fed boosted short term rates for the first time in 7 years. Even the slight 25 basis point hike improves profitability in the firm’s leading money fund business by +30% into the New Year.

 

In essence, the firm rolls 30-day paper throughout the short term fixed income curves and the new higher yields forthcoming into 2016 will allow the company to claw back some of the waived fees it has extended to its client base in money funds. Year-to-date the company has waived over $300 million in fees. With that firmly in the rearview, it becomes an opportunity set as FII gets higher yield from cash products next year.

 

In the financial sector, FII is the most asset sensitive name we cover, meaning it benefits most from even marginal interest rate hikes.

RH

We have to give Restoration Hardware Chairman and CEO Gary Friedman props for his approximately nine minute segment on Cramer last week. Let's face it, him going on what's arguably the most volatile and biased financial media platform, unscripted, is not what we wanted to see. The risk of fireworks was high.

 

But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at Restoration Hardware (RH) -- growth in product concepts, and RH's real estate transformation. The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.

TLT

Now that the Fed finally hiked federal funds by 25 basis points into a late-cycle slowdown, the fact that TLT was up 1.8% (Wed-Fri.) on “lift-off” should be concerning to the growth accelerating bulls. After the dovish hike, the U.S. Treasury 10-Year Yield (THE GROWTH EXPECTATION PROXY) was down 10 basis points (2.3% to 2.2%). And yes, the most telegraphed rate hike ever was dovish.

 

Just look at the Fed’s projections and the language in the FOMC's statement. Yellen, essentially, acknowledged what we have said for ~ a year and a half now:

  • “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”
  • “Market-based measures of inflation expectations remain low; some survey-based measures of longer-term inflation expectations have edged down”
  • “Net exports have been soft”
  • ... And on the Fed’s forward-looking economic projections:
  • The Fed kept 2016 GDP estimates unchanged, and downwardly revised 2017 to 2.0-2.3% from 2.0-2.4%.
  • 2016 PCE Inflation was downwardly revised to 1.2-1.5% from 1.5-1.8%. 

Three for the Road

TWEET OF THE DAY

INSTANT INSIGHT | The Coming #Recession? https://app.hedgeye.com/insights/48235-instant-insight-the-coming-recession… cc @KeithMcCullough $CAT $XLI $WAB #Economy #Yellen

@Hedgeye

QUOTE OF THE DAY

Let your life lightly dance on the edges of time like dew on the tip of a leaf.

Rabindranath Tagore

STAT OF THE DAY

Amazon spent 11.7% of revenue on shipping costs in the third quarter this year.


INSTANT INSIGHT | What To Watch: The Fed, Oil And U.S. Dollar

 

A nice little 3-day rally (+2.9%) for the S&P 500 for Christmas, and the Fed (Atlanta) cuts its Q4 GDP forecast to 1.3% after raising rates!

 

INSTANT INSIGHT | What To Watch: The Fed, Oil And U.S. Dollar - Fed dunce cap cartoon 12.23.2015

 

In other financial market news, Down Dollar is what that ole “reflation” hope is built on and you’re seeing some follow through there this morning with EUR and YEN +0.4-0.5% against USD, but bullish TREND in U.S. Dollar remains firmly intact – risk range = 97.13-99.41 US Index.

 

INSTANT INSIGHT | What To Watch: The Fed, Oil And U.S. Dollar - dollar other guys

 

Meanwhile, Oil was up +4.8% in a straight line yesterday and led the rally in seemingly oversold #Deflation equities. That move does not a bullish TREND make with the immediate-term risk range for WTI now = $34.94-38.08 (sell at the top-end of the range).

 

INSTANT INSIGHT | What To Watch: The Fed, Oil And U.S. Dollar - oil cartoon 12.14.2015

 

Merry Christmas and Happy Holidays to you and your loved ones.


The Macro Show Replay | December 24, 2015

 


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  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.32 2.12 2.27
SPX
S&P 500
1,993 2,079 2,064
RUT
Russell 2000
1,108 1,157 1,152
COMPQ
NASDAQ Composite
4,895 5,085 5,001
NIKK
Nikkei 225 Index
18,507 19,239 18,886
DAX
German DAX Composite
10,163 10,823 10,727
VIX
Volatility Index
14.42 24.89 15.57
DXY
U.S. Dollar Index
97.13 99.41 98.37
EURUSD
Euro
1.07 1.10 1.09
USDJPY
Japanese Yen
120.08 121.99 120.88
WTIC
Light Crude Oil Spot Price
34.94 38.08 37.89
NATGAS
Natural Gas Spot Price
1.69 2.03 2.00
GOLD
Gold Spot Price
1,049 1,084 1,069
COPPER
Copper Spot Price
2.02 2.15 2.13
AAPL
Apple Inc.
104 110 108
AMZN
Amazon.com Inc.
642 681 663
GOOGL
Alphabet Inc.
746 778 768
DIS
Walt Disney Company, Inc.
102 109 105
NKE
Nike Inc.
126 133 128
KMI
Kinder Morgan Inc.
13.72 16.91 16.41

 

 


December 24, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.32 2.12 2.27
SPX
S&P 500
1,993 2,079 2,064
RUT
Russell 2000
1,108 1,157 1,152
COMPQ
NASDAQ Composite
4,895 5,085 5,001
NIKK
Nikkei 225 Index
18,507 19,239 18,886
DAX
German DAX Composite
10,163 10,823 10,727
VIX
Volatility Index
14.42 24.89 15.57
DXY
U.S. Dollar Index
97.13 99.41 98.37
EURUSD
Euro
1.07 1.10 1.09
USDJPY
Japanese Yen
120.08 121.99 120.88
WTIC
Light Crude Oil Spot Price
34.94 38.08 37.89
NATGAS
Natural Gas Spot Price
1.69 2.03 2.00
GOLD
Gold Spot Price
1,049 1,084 1,069
COPPER
Copper Spot Price
2.02 2.15 2.13
AAPL
Apple Inc.
104 110 108
AMZN
Amazon.com Inc.
642 681 663
GOOGL
Alphabet Inc.
746 778 768
DIS
Walt Disney Company, Inc.
102 109 105
NKE
Nike Inc.
126 133 128
KMI
Kinder Morgan Inc.
13.72 16.91 16.41

 

 


Trending Higher vs Trend Consistent | Purchase Apps & NHS

Takeaway: December 2015, as measured by mortgage purchase app volume, is on track to be the strongest month of 2015 by a wide margin.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - Compendium 122315

 

Today’s Focus: New Home Sales for November & MBA Purchase Apps

 

New Home Sales:  New Home Sales rose +4.3% to 490K in November against downwardly revised October estimates.  On a year-over-year basis, sales were up +9.1% with accelerating growth in the South and West offsetting declining growth in the Northeast and Midwest.  

 

Given the serial tendency toward downward revision and a +/-18% margin of error, NHS are one of the most volatile and highly revised housing data series, making it hard to take an overly convicted view of any given month in isolation.  Any TRID related impacts in the November data only adds to the noisiness. 

 

From a Trend perspective, the gain in November brings sales activity in the New Home Market (currently running at  ~9.3% of the total housing transaction volume) back up to the TTM average with Sales growth YTD running +13.9% YoY relative to the corresponding period last year. 

 

In short, the November NHS data is largely trend consistent and with total and single-family starts making higher cycle highs in November, the mean reversion march higher in new construction activity and sales remains modestly choppy but ongoing. 

 

 

Purchase Applications:  Purchase Demand rose +4.10% sequentially  and accelerated to +37.6% YoY, taking the Index reading to 230.8 – marking the fastest pace of growth YTD and the highest index reading since mid-2010.   The strength in latest weeks extends the streak of elevated activity observed in the back half of November/December to-date to six weeks.    Seasonal and peri-holiday noise in the high frequency data is prevalent this time of year but the persistent strength observed over the last month and a half lends some legitimacy to the reported uptick in purchase demand.   We’ll look for confirmatory evidence out of Pending Home Sales data for November due out next Wednesday. 

 

It’s also worth noting that continued housing market normalization with further recovery in conventional mortgaged purchases and a decline in distressed/cash/investor sales would be expected to manifest in a drift higher in purchase application activity but with less than a one-for-one flow through to total transaction volume.  

 

 

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - Purchase Apps Monthly

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - Purchase 2013v14v15

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - Purchase YoY

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - Purchase Index   YoY Qtrly

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - Purchase LT

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - NHS EHS to NHS ratio

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - NHS LT

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - NHS Regional YoY

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - NHS Sales vs SF Starts

 

Trending Higher vs Trend Consistent | Purchase Apps & NHS - NHS Total   YoY TTM

 

 

 

 

About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.

   

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


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