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Client Talking Points

EURO

While there was a USD bounce on the jobs report having enough of what a #LateCycle Labor Economist (Yellen) might want to see to keep raising rates. The EUR/USD is +0.2% to start the week after one of its best weeks in a year at +3.1% week-over-week.

DAX

The DAX doesn’t like the Up Euro trade inasmuch as Japanese stocks didn’t like an Up Yen (+3.6% last week vs USD). The DAX is down another -1.9% this morning and remains in crash mode, down -26.5% from last year’s peak.

UST 10YR

One of the few places to stay long and liquid remains the Long Bond. The UST 10YR Yield was down -8 basis points last week and is down another 2 basis points this morning to 1.82% - this is flattening the Yield Spread to a new cycle low of 110 basis points (10yr minus 2yr) and that’s one of the main reasons why the Financials (XLF) remain our favorite S&P Sector short.

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 25% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
XLU

The bond market understands #GrowthSlowing. So do Utilities (XLU), which is why XLU is leading S&P sub-sector performance in 2016. XLU is up +7.6% versus down -8.0% for the S&P 500. Stick with it on the long side.  

GIS

GIS remains one of analyst Howard Penney's top Long ideas in the Consumer Staples space. As we have continued to say, it boasts style factors ideal in turbulent times; high market cap, low beta and liquidity. While GIS is down year-to-date, it's held up very well against the broader stock market. GIS is down -4% versus down -8% for the S&P 500 in 2016.

 

GIS has been picking up steam, as the company is working to improve merchandising and advertising on core business. One of the initiatives is making a distinct effort to delve deeper into the natural and organic category. That will certainly help them a lot in the long run. More to come.

TLT

Down go growth expectations and down goes the yield curve. That's the latest from Macro markets last week and it plays right into our long Long-Term Treasuries (TLT) and short Junk Bonds (JNK) Investing Ideas.

 

The UST 10YR Yield declined another -9 basis points last week which helped boost TLT +1.1% on the week. In a healthy environment, bonds as an asset class go up in tandem, but JNK lost -0.9% on the week despite a falling yield curve. That’s because we’re NOT in an “all is good” environment. Credit spreads widen in turbulent times. This widening is the alpha-generating opportunity in long TLT, short JNK.

Three for the Road

TWEET OF THE DAY

Under 60 Seconds: LinkedIn’s Earnings Report $LNKD  https://app.hedgeye.com/insights/48998-under-60-seconds-linkedin-s-earnings-report … via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Be a voice, not an echo.

Albert Einstein                                    

STAT OF THE DAY

The world’s largest producer of platinum, Anglo American Platinum Ltd. said profit fell 86% as it wrote down mines and operations by 14 billion rand ($876 million).