USD, Oil and Equities

Client Talking Points

USD

Dollar Up, Rates Down this morning – as opposed to the reflation trade (many head-fakes in the last 18 months), that’s the #Deflation risk on move. We will be watching that closely this week with the USD signaling immediate-term oversold on Friday.

OIL

WTI Oil is down -2% this morning (it has a -0.8 inverse 15-day correlation to USD) after a +2.4% week with an immediate-term risk range of $34.65-41.53 and OVX (Oil Volatility) holding @Hedgeye TREND support with a risk range of 42-56.

EQUITIES

Won’t be the way Old Wall media will characterize last week, but it wasn’t a good week where the #BeliefSystem on central-market-planning continues to break down. On the week: Italy -2.0%, Japan -1.3%, France -0.7% vs. Russia (purely reflation spec vs. USD Down) +4.7% and the Russell 2000 +1.3% to -3.0% year-to-date.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 27% INTL CURRENCIES 5%

Top Long Ideas

Company Ticker Sector Duration
XLU

Utilities (XLU) hasn’t bounced as much as leveraged , high-beta resource names, but the outperformance is greatly divergent vs. both the market, and our preferred sector short in financials (XLU +12.3% YTD, S&P -0.3% YTD, XLF -4.6% YTD).

GIS

General Mills (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 during turbulent times; high market cap, low beta and liquidity. Case in point, GIS is up 7% year-to-date, versus essentially flat for the S&P 500 in 2016. We'll have an update next week after GIS reports earnings.

TLT

Long-Term Treasuries (TLT) finished +1.9% on the week. Aside from Mr. Market, the Fed downwardly revised expectations (the common lag) on Wednesday:

  • The median 2016 GDP forecast revised to +2.2% vs. +2.4% in December
  • The median 2016 PCE Inflation forecast revised to +1.2% vs. +1.6% in December
  • Median Federal Funds end-2016 rate forecast revised to 0.9% vs. +1.4% in December

From a GROWTH, INFLATION, POLICY perspective, it’s lower for longer on growth and inflation and a more dovish Fed.

Three for the Road

TWEET OF THE DAY

*VIDEO

How Slowing US Growth Impacts Sectors https://app.hedgeye.com/insights/49828-young-guns-how-slowing-u-s-growth-impacts-sectors… @HedgeyeHIT @Hedgeye_Comdty @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

The whole world is simply nothing more than a flow chart for capital.

Paul Tudor Jones

STAT OF THE DAY

According to a federal prosecutor a San Diego man who inherited a 1974 aluminum penny valued at $2 million has surrendered it to the U.S. Mint to settle a lawsuit over ownership of the rare coin.


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