Client Talking Points
Got growth slowing? Europe’s economic heavyweight does. Today the German economic ministry cut Germany’s 2016 growth forecast to 1.7% from 1.8% previously forecast. It also cut the 2016 export growth outlook to 3.2% vs prior 4.2% and lowered its outlook for import growth to 4.8% vs 5.3%. #EuropeSlowing
When an asset class that big moves that much that fast it leaves a mark on markets. Equities correlation to oil has been building over the last year and has been ~0.97 over the last month. Yesterday’s rally in equities followed the bounce in crude (& rumors of production cuts) only to be reversed after hours when API reported an 11.4 mm barrel build in inventory – the largest since 1996. Demand is slowing, supply is building and as deflation continues to define the Trend despite manic, one-day countertrend price moves.
Chinese industrial profits declined -4.9% Y/Y in December which is a sharp deceleration from -1.4% Y/Y in December. Whispers of fresh stimulus might be the only fading hope to delaying the flush of global overcapacity hanging on the “Chinese Demand” story.
|FIXED INCOME||21%||INTL CURRENCIES||12%|
Top Long Ideas
Utilities (XLU) continue to be the bright spot in the equity markets for 2016. XLU is up 1% this year, having edged out all other S&P 500 subsectors by a wide margin. Last week, XLU was down marginally but was still second best among the subsectors, beating all but Healthcare (XLV). Essentially, it's paying off to own low-beta XLU in a crashing market.
General Mills (GIS) has turned on its advertising for no artificial colors and flavors in its cereal, as well as an increased effort for its gluten free campaign. Click here to view the 30 second spot TV commercial.
These steps taken on cereal, coupled with improved merchandise planning across their portfolio in the second half should bode well for the company’s future performance. Additionally, General Mills fits neatly into the style factors that we like from a macro point of view, large cap, low beta and liquidity.
Rating agency S&P disclosed on Thursday three concerning stats as it relates to the wellness of credit oustanding:
Then on Friday, S&P followed with additional action:
Moody’s echoed the shaky state of credit markets by announcing it was putting the ratings of 120 oil and gas companies on watch Friday.
Strap on your seatbelts as we expect that credit spreads will continue to widen. If the Fed pivots on its “4 rate hikes” in 2016 as the data continues to slow, Treasury bond yields get pushed lower and high-yield spreads widen into a late cycle deleveraging. This should continue to generate alpha in a Short JNK, Long TLT trade.
Three for the Road
TWEET OF THE DAY
NEW VIDEO | Under 60 Seconds: #McDonalds Earnings Report https://app.hedgeye.com/insights/48766-under-60-seconds-mcd-s-earnings-report… @HedgeyeHWP $MCD @KeithMcCullough
QUOTE OF THE DAY
We learn wisdom from failure much more than success. We often discover what we will do, by finding out what we will not do.
STAT OF THE DAY
In 2015 U.S. Universities raised a record $40.3 billion.