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Slow Global Growth Snails

Takeaway: The latest read through on U.S. and Euro-area economies isn't good and confirms both economies remain mired in this slow growth environment.

Slow Global Growth Snails - Slow growth snails cartoon 07.14.2015

 

Here's analysis from our Macro team in a note sent to subscribers this morning:

 

"Eurozone April preliminary PMIs were released this morning... drum roll... both the Manufacturing and Composite (Manufacturing + Services) fell month-over-month, in-line with our theme of #EuropeSlowing. Eurozone Manufacturing recorded 51.3 vs. 51.6 prior and the Composite fell to 53.0 vs. 53.1. Services rose 10bps to 53.2. Meanwhile, coming late to the party, the ECB released the results of the Q2 2016 survey of professional forecasters, which sees the inflation forecast revised down by 0.4% to 0.3% for 2016 and growth at 1.5% in 2016 vs. a prior estimate of 1.7%."

 

Slow Global Growth Snails - eurozone

 

Meanwhile, in the U.S., more souring economic data. According to Markit, its survey of U.S. Manufacturing PMI fell to its lowest level in six-and-a-half years:

 

Slow Global Growth Snails - us pmi

 

Here's analysis from Markit: 

 

"US factories reported their worst month for just over six-and-a-half years in April, dashing hopes that first quarter weakness will prove temporary... With prior months’ survey data pointing to annualized GDP growth of just 0.7% in the first quarter, the deteriorating performance of manufacturing suggests that growth could weaken closer towards stagnation in the second quarter."

 

Then there's China. Earlier this week, we noted that the PBoC would enact more "prudent" monetary policy even as China's economy continues to slow.

 

Add all of this to the laundry list of dour economic news we've seen of late.


CHART OF THE DAY | U.S. 2016 Growth Estimates: Us Versus Consensus

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.

 

"... So to summarize, our view is that key economic statistics will begin to miss consensus estimates as the year progresses. We’ve highlighted our view on GDP growth for 2016 in the Chart of the Day below. Specifically, while we were in line with consensus for Q1 2016 GDP growth, we are close to 100 basis points below consensus for the remainder of 2016E. In our views it’s hard to see how disappointing data will buoy the stock market, especially when the growth rates being reported are barely above recessionary levels in the best case scenario."

 

CHART OF THE DAY | U.S. 2016 Growth Estimates: Us Versus Consensus - 4 22 16 EL


Cartoon of the Day: A Closer Look At NIRP

Cartoon of the Day: A Closer Look At NIRP - negative interest rate cartoon 04.21.2016

 

BOJ governor Haruhiko Kuroda has been defending the central bank's negative interest rate policy recently, even stressing his readiness to expand monetary policy still further. "Good luck with that," Hedgeye CEO Keith McCullough wrote recently. "These guys just don't get it. The #BeliefSystem is breaking down."


Daily Trading Ranges

20 Proprietary Risk Ranges

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Will Bernie Bow Out? ... Trump's Got "The Best Toys"

Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

BERNIE'S END GAME?

 

Will Bernie Bow Out? ... Trump's Got "The Best Toys" - bernie sanders

 

Bernie Sanders' NY loss was crushing - not just for losing in the state where he was born, raised, and claimed he would pull an upset, but because it dashed any reasonable chance for him to eclipse Hillary Clinton in pledged delegates. Now he must choose whether to up the ante with attacks on Clinton, or pull a 180 and return to his core, issues-based movement. His campaign is sending mixed signals on whether he will remain in the race after the conclusion of next week's Northeast primaries - where Clinton has healthy leads. This could be a make or break week for his continued candidacy, and going negative again might be his only shot - yet can he justify doing so just as there are signs that 83% of Sanders-leaning Democrats would coalesce around Clinton? Party unity is on the line.

DELEGATE DRAFT DAY

 

Will Bernie Bow Out? ... Trump's Got "The Best Toys" - ted cruz up

 

As it stands now, Donald Trump is 392 delegates shy of the 1237 needed to secure the nomination the old fashioned way, but he is poised for another huge set of wins in CT, MD, DE, PA, and RI next week. Whether or not Trump goes to Cleveland with a delegate majority, some pols and pundits are suggesting that he could still clinch the nomination on the first ballot even if he is 100-150 delegates short.

 

This is due to the unbound "free agent" delegates that will be available, and are sure to be wined-and-dined by Trump and Ted Cruz for their support - though Trump's lead and his claim of having "the best toys" means he may have more to offer.   

HOOSIER DADDY?

There may be five more Northeastern states voting before May 3rd's IN contest, but the focus of the Trump and Cruz campaigns has shifted back to the Midwest. IN is being compared to WI - where Cruz pulled off a strong victory - and if he has any hope of blocking Trump from winning 1237 delegates, he needs to sweep the Hoosier State. But this is far from certain - IN's demographics are more favorable to Trump than WI's were, and the anti-Trump forces have yet to organize there. As important as winning IN is to Cruz's new strategy, it may be more vital to Trump and his ability to win a delegate majority without it.


About Everything: The Golden Age of Home Improvement

Takeaway: Buying a home is out, remodeling one is in.

Editor's Note: In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why consumer spending on home improvement is outstripping GDP growth and the key demographic trends behind this shift.

 

About Everything: The Golden Age of Home Improvement - z home imp

WHAT’S HAPPENING

 

Three years ago, in a report called “The Boom in Home Remodeling,” I predicted that this was an industry about to take off. Now, it is airborne. Total spending on home improvement, well above $300 billion (and perhaps hitting an all-time high in 2016), continues to grow faster than GDP.

 

What’s more amazing is that the industry has expanded in the face of a crumbling housing market. Residential construction spending plunged a whopping 60 percent from peak to trough during the Great Recession. Home improvement spending’s fall? Just 13 percent. 

 

About Everything: The Golden Age of Home Improvement - about everything slide 3

 

In housing, single-family homes (not multi-units) have lagged the most in recent years. But in home improvement, single-family is the faster horse.

 

About Everything: The Golden Age of Home Improvement - about everything slide 4

 

Equity prices in the industry reflect this boom—and the big chains are really riding the wave.

 

About Everything: The Golden Age of Home Improvement - about everything slide 5

 

Lowe’s stock prices have more than doubled over the past four years. Home Depot shares have nearly tripled in value. Lowe’s plunked down $2.3 billion to acquire the Canadian giant RONA. And thanks to home services platforms like Pro.com, even more industry revenue gets funneled to the big guys.

 

About Everything: The Golden Age of Home Improvement - about everything 4 21 callout

WHY IT’S HAPPENING: DRIVERS

 

The rising average age of homes. While sprawling infrastructure projects once lowered the average age (and created new housing demand) by demolishing wide swathes of residences, those days are long gone. About 63 percent of the nation’s houses are at least 30 years old, up from 47 percent in 1995. 

 

Today’s homes, moreover, are better constructed, allowing for indefinite improvements rather than knocking down and rebuilding. Thus, in some ways, home remodeling is actually replacing new home sales.

 

Falling mobility rates. A dwindling share of Americans move each year (a trend that kicked off in the 1980s). Falling mobility is partly due to an aging population and partly due to lower mobility at each age. More and more homeowners are in their current properties for the long haul—and are incentivized to spend on home remodeling.

 

Economic recovery. Homeowners who put off large discretionary projects during the Great Recession finally have the cash to take on those projects. Discretionary spending on remodeling is on the rise for the first time in a decade.

 

Generational change: aging-in-place Boomers. Boomers account for almost half of all dollars spent on home remodeling.

 

About Everything: The Golden Age of Home Improvement - about everything slide 6

 

They’re aging in place, working longer in retirement, and putting up their adult children who are just fine sticking around the nest.

 

About Everything: The Golden Age of Home Improvement - about everything slide 7

 

Generational change: DIY Xers. Most Gen-Xers will gladly save money by buying an imperfect or under-finished home—and then fixing it up on their own over time. They value personalization and often trust their own talents more than those of a homebuilder. In home remodeling (as in any other area of their lives), Xers wonder why they should call a professional when they can do the job themselves.

 

Generational change: cohabiting Millennials. Every Millennial who lives with mom or dad is one less buyer of a new home and one more excuse to remodel an existing home.

 

About Everything: The Golden Age of Home Improvement - about everything slide 8

 

Even when they do move out, Millennials tend to stay nearby—enabling them to get parental advice or funding when remodeling their own homes or to help their parents when remodeling theirs. When Millennials remodel, they need someone to show them the way: Lowe’s recently released how-to tutorials on Vine for Millennial DIYers. N2Care even builds “granny pods” so that Millennials can have their aging parents within reach. 

BROADER IMPLICATIONS

 

Affluent Boomer demand is fueling the industry’s growth. High-end Boomers unfazed by the Great Recession have spent heavily on home improvement even while banks foreclosed on younger and poorer consumers. Affluent coastal metro areas in the Northeast (in cities like Boston, New York, and Washington, D.C.) and in the West (Seattle, San Jose, and Phoenix) continue to be hotbeds for these big spenders.

 

About Everything: The Golden Age of Home Improvement - about everything slide 9

 

 

Airbnb property owners are renovating their rented spaces. Private residences are taking over a growing chunk of the accommodation market. Homeowners who never had to worry about hotel industry regulations are now rebuilding stairways, constructing windows, and adding insulation to bring their properties up to code. Not to mention the cosmetic upgrades (like repainting and installing new countertops) designed to boost appeal.

 

Home remodeling firms are betting big on technology. Lowe’s and Microsoft have teamed up to create an in-store augmented reality experience that will allow shoppers to “try out” different cabinets, finishes, and more before buying. IKEA has created an online VR app that allows website visitors to customize a sample kitchen. And Home Depot carries scores of smart home products, from learning thermostats to precipitation-driven irrigation systems. 

TAKEAWAY

 

Remodeling firms should be mindful of the generation they’re targeting:

 

  • Boomers are building onto their homes to make room for the kids (and grandkids). They also need “universal design” accessibility upgrades, from wheelchair ramps to widened hallways.
  • Xers spend heavily on no-frills DIY. This generation is the most price sensitive.
  • Millennials want high-touch (as well as high-tech) services. They are looking for an expert to show them the way. 

 

About Everything: The Golden Age of Home Improvement - about everything slide 10

 

For more, watch Neil Howe in the associated About Everything video.

 


3 Economic Charts Of Concern

Takeaway: The Fed has little or no juice left.

"This morning's data confirms our view that the economy continues to slow on a trending basis and is set up to slow fairly sharply here in Q2," Hedgeye Senior Macro analyst Darius Dale wrote earlier this morning.

3 Economic Charts Of Concern - GDP cartoon 05.29.2015 large

 

Here's more analysis from our Macro team in a note sent to subscribers earlier this morning:

 

"Since the late-September lows, the S&P 500 has held a reasonably tight positive 0.75 correlation with the Citi U.S. Economic Surprise Index, which itself has rallied hard off it's early-February lows as U.S. economic data stabilized in rate-of-change terms and perpetuated a waning of recession fears.

 

3 Economic Charts Of Concern - s p citi surprise

 

Now, a topping process in the latter index appears to have gotten underway over the past two weeks, as most recently highlighted by this morning's meaningful misses in the Chicago Fed National Activity Index and the Philly Fed Business Outlook Survey. We reiterate our view that [pending] dour economic data itself is the catalyst for the market to decline from here." 

 

Digging deeper into the data...

 

As you can see below in the "high-frequency" data series that we track for the U.S. economy, many of these indicators stabilized on a sequential (month-over-month) basis but are in the red versus their 3-month average:

 

Click image below to enlarge

3 Economic Charts Of Concern - U.S. data

 

As Dale points out, dovish Fed commentary can't add much more juice to the markets. The most recent read on implied yield on Fed Fund futures suggests investors don't see a rate hike until December 2017.

 

3 Economic Charts Of Concern - Chart of the Day 4 20

 

"There's no more juice left to squeeze out of rates markets w/ dovish talk," Dale writes. "She actually has to do QE4 to get rates spreads to compress further from here. QE4 before the crash?"

 

Yet more reasons why we're holding the line on our bearish views.

 

For more...

 

Watch Dale in the video below, "U.S. Economy Enters Most Difficult Part of Cycle":


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