Our Macro team's favorite sector short, Financials (XLF), is the second worst performing S&P sector year-to-date at down -0.7%.
Takeaway: Ryan Tip Toeing Toward Trump; Dems Dropping Debbie; Almost There
Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email firstname.lastname@example.org.
Looks like Speaker Paul Ryan will take his time deciding when to endorse Donald Trump despite rumors that he was on the verge this week. Ryan and Trump remain deeply divided over major policy issues, particularly free trade and immigration, but Ryan allies feel the longer he holds out, the more damage he may inflict on the party’s chances this fall.
Republicans have chosen to name three conservative members to lead the committee that will decide this summer’s convention platform. Moves were made after Trump mentioned he’d like to see changes made to the agenda that has essentially stayed the same since the days of Ronald Reagan. Look for issues that have united Republicans in the past to be highlighted; a strong party platform is important for unity going into July as well as corralling corporate convention sponsors and major donors already agitated by Trump’s views and commentary.
High level Democrats are discussing whether or not Rep. Debbie Wasserman Shultz (FL) should step down as DNC chairwoman before the big blue party in July. Democrats feel that Shultz has been too disruptive in uniting the party and whether her continued and veiled support for Hillary Clinton muddies the water for future discussions and negotiations. Adding to that, her most recent squabble with Bernie Sanders (we lost count) over rigging the system only adds fuel to the fire.
For those of you keeping score...with his win in Washington State, Trump finds himself just a handful of delegates shy of the Republican nomination. He now holds 1,229 of the 1,237 delegates needed to clinch.
Takeaway: Headline Durable Goods orders jumped +3.4% MoM and improved to +1.9% YoY but the internals were less sanguine.
Hiding in plain sight behind Wall Street's fallacious "all is good" narrative is U.S. economic reality. A deep dive into today's durable goods data confirms our dour outlook for U.S. growth.
Below is analysis from Hedgeye U.S. Macro analyst Christian Drake in a note sent to subscribers earlier this morning:
"Headline Durable Goods orders jumped +3.4% MoM and improved to +1.9% YoY but the internals were less sanguine with the bulk of the gain stemming from the +65% MoM increase in commercial aircraft & parts. Durables ex-Defense and Aircraft, which is most aligned with what actual households buy, rose +0.6% MoM but remains down -0.4% YoY.
Meanwhile, Core Capital Goods fell MoM for a 3rd consecutive month, dropping -0.8 sequentially and holding at -5% YoY - continuing the epic run of declining capital spending with negative year-over-year growth in 15 of the last 16 months."
Here's the detailed breakdown in the chart below
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Takeaway: America is in a "position of extreme vulnerability."
Conventional wisdom suggests economic and related tensions wrought by The Great Recession are in the rearview. All is good. Sunny skies for miles.
Not so says Hedgeye Managing Director and Demography Sector Head Neil Howe, who kicked off John Mauldin's Strategic Investment Conference in Dallas with a bang. "Our first presentation from Neil Howe on the First Turning was the perfect set-up... and truly was a show stopper," Mauldin wrote following Howe's presentation.
In the wide-ranging interview below following his speech, Howe explains why America is in a "position of extreme vulnerability" based on "the mood of the electorate" and "widening generational inequity." He discusses everything from the rise of polarizing political figures like Donald Trump and Bernie Sanders to the Fed's "destructive monetary policy."
Takeaway: All clear in China? Not by a long shot.
Editor's Note: As our Financials analyst Josh Steiner remarked on The Macro Show today, "Markets were in free-fall earlier this year and pundits were saying a recession was imminent. Then, in mid-February, it all stopped. One of the reasons is that China started pushing credit like crazy, reflating commodities, emerging markets and the U.S. stock market. But China cannot keep rapidly growing credit like it has been. China is now an enormous systemic risk to the global economy."
"Chinese Steel – Risk measures were subdued last week. However, the price for Chinese steel continued to drop, falling by another 5% last week, bringing the month-over-month change to -21% as the mid-February to mid-April artificial reflation trade unwinds. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy."
"Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly."
"Chinese Credit Outstanding – Chinese credit outstanding amounts to 148.7 trillion RMB as of April 30, 2016, which is up +11.9% year over year. Note: this data is only updated monthly."
*This is an excerpt from an institutional research note. To access our research email email@example.com.
Takeaway: A closer look at global macro market developments.
Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products.
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