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Daily Market Data Dump: Friday

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

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Friday - equity markets 6 3

 

Daily Market Data Dump: Friday - sector performance 6 3

 

Daily Market Data Dump: Friday - volume 6 3

 

Daily Market Data Dump: Friday - rates and spreads 6 3

 

Daily Market Data Dump: Friday - currencies 6 3


BREXIT: SHOULD I STAY OR SHOULD I GO?

Hedgeye Potomac is hosting a call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 

 

Nicoll will discuss the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.  (Hint: he believes the UK will ultimately vote to Stay...).

 

The call will take place on Wednesday, June 8th at 11am ET with Nicoll giving prepared remarks followed by Question & Answer.

 

 

KEY TOPICS ON THE CALL WILL INCLUDE 

  • How did the UK get to a vote and where do the divisions lie between political parties?
  • What are the arguments for staying and leaving?
  • Who will win?
  • What are the financial, political, and cultural impacts on the UK from Brexit?
  • What’s the impact of Brexit on the EU and Eurozone?  Could another country vote to break free?

 

ABOUT ALEXANDER NICOLL

 

Alex Nicoll is a Consulting Member of the International Institute for Strategic Studies, a London-based think-tank. Previously he was a member of the Directing Staff of the Institute as Director of Editorial, and also headed the defense program.  Before joining the IISS he was a journalist at the Financial Times newspaper for 18 years, with posts covering international capital markets, Asia, and defense. Earlier, he was a foreign correspondent for Reuters news agency, with posts in Hong Kong, Paris, Tehran and New York. 

 

Ping for more information.


US Equity Volume has evaporated

Client Talking Points

USD

Both the FX and Bond markets have been pricing in another #EmploymentSlowing report – USD is down for the 1st week in 5 and the reflation trade loves that – perversely, equity beta bulls need another headline NFP print that’s inline to slightly worse.

US 10 YR

Despite Yellen saying she’s “probably” going to raise rates in June/July, rates are falling (10yr 1.80% last vs. the recent pop to lower-highs of 1.9%) and the Yield Spread has taken another leg down to its lowest level of both #TheCycle and 2016 (91 bps wide on 10s/2s) – talk about squirrely market expectations vs. implicit economic #GrowthSlowing expectations…

SP500

What happens the “hedge” of 14,000 hedge funds doesn’t stay down on no volume? It goes up… to lower-highs… squeezes consensus into a reluctant net long position (net LONG SP500 Index + E-mini futs/options position = 2.73x on a 1yr z-score), then falls again. I can probably get you to 2124-2129 SPX today, but the jobs report might have to be sub 100k for that!

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/2/16 80% 0% 0% 4% 8% 8%
6/3/16 80% 0% 0% 4% 8% 8%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/2/16 80% 0% 0% 12% 24% 24%
6/3/16 80% 0% 0% 12% 24% 24%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
MCD

For some perspective on the Macro environment and why we favor companies like McDonald's (MCD), here's an excerpt from the Early Look written by Hedgeye CEO Keith McCullough:

 

Taking a step back, don’t forget where US Consumers (70% of GDP) were at this time last year:

 

  • US Employment Growth (NFP) was putting in a cycle peak
  • US Consumer Confidence was putting in a cycle peak
  • US Consumption Growth was putting in a cycle peak

 

Peak. Peak. #Peak!

 

And what happens when you start to lap the cycle peak? Well, instead of crappy Baby Boom capacity putting up mediocre (barely positive) same store sales at the peak, they look even crappier on the back side of the cycle."

 

That's why we like large-cap, low-beta, liquid companies like McDonald's in this tumultuous market environment. Case in point, earlier in the week, MCD hit an all-time high. Since we added the company to Investing Ideas, it is up almost 30%.

 

Stick with it. Restaurants analyst Howard Penney reiterates his "road to $150" call, implyling more than 15% upside from here.

TLT

Credit markets are one of the major beneficiaries (maybe the largest) of the reflation trade since February. While yield spread compression has been a positive for Long Bonds (TLT, ZROZ), a perceived monetary policy shift and a collapse in bond market volatility expectations have been a positive for Junk Bonds (JNK), but we don’t expect it to continue.

 

With growth continuing to slow alongside consensus positioning broadly, downside deflation risk is on the table. As we’ve highlighted on a daily basis, consumption growth and labor market growth peaked in Q1 2015 and both are slowing alongside a continued corporate profits slowdown. This mix:

  • Smells like incremental deflation on the margin;
  • Is a huge risk for high yield credit (JNK)

 

GLD

Our Macro team’s proprietary Growth, Inflation, Policy Model (GIP Model) is a proven model that accurately front-runs the second derivative direction of inflation-adjusted growth. The most important call-out is that our growth estimates for 2016 (year-over-year) remain WELL BELOW Wall Street and Central Bank consensus forecasts:

 

  • Hedgeye: +1.4%
  • Bloomberg Consensus: +1.8%
  • Central Bank: +2.2%

 

In conclusion, the Fed remains out to lunch with their expectation for growth, and once they come around the Hedgeye view, the policy playbook calls for incremental easing on the margin.

Three for the Road

TWEET OF THE DAY

Jobs report was the opposite of HUUUUGE

@HedgeyeDJ

QUOTE OF THE DAY

"Don't go around saying the world owes you a living. The world owes you nothing. It was here first."

-Mark Twain

STAT OF THE DAY

West Virginia University ranks 14th in victories among NCAA FBS programs, as well as the most victories among those programs that never claimed nor won a National Championship.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

About Everything | Q&A with Neil Howe: Everything Must Go

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why department stores are slowly fading away. "The downward arc started well over a decade ago—long before the Great Recession," Howe writes. "In fact, you need to go back to the Clinton ‘90s to find a really healthy growth year for department stores... Those days are long gone."

 

Click here to read Howe’s associated About Everything piece.


CHART OF THE DAY: What To Watch Ahead Of Today's Jobs Report

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by U.S. Macro analyst Christian Drake. Click here to learn more.

 

"... As we’ve highlighted, just because we’re charged with generating high-frequency macro commentary doesn’t mean the slower, temporal progression of the cycle ceases to exists. As the Chart of the Day below illustrates, our larger, late-cycle point is simply that once we roll past peak rate-of-change in payroll growth, it’s a one way street towards convergence with 0%. The period of the cycle is years and historical precedents suggest some further runway in the present employment expansion but the slope of the line has now been negative for 15 months and the baseline expectation should be for that to continue to play itself out in autocorrelated fashion to the downside."

 

CHART OF THE DAY: What To Watch Ahead Of Today's Jobs Report - CoD employment Growth


Strength In Numbers

"Fate whispers to the warrior 'You cannot withstand the storm.', the warrior whispers back 'I am the storm.' "

 

With the bench scoring 45 points and Klay and Curry only dropping 20 combined in last night’s Game 1, the Warriors stormed the Cavs with their “Strength In Numbers” mantra turned strategy. 

 

The “numbers” in Macro land, on the other hand, may be less about “strength” and more about “stories”. 

 

Reported April data showed some of the largest sequential increases in years, from New Home Sales to Retail Sales to PCE. Is it because April had 5 weekends this year instead of 4 in addition to the Easter shift, giving it 5 effective weeks relative to 3 in March – a 40% difference and the first such instance since 2005?

 

Or maybe, after 85-months, the escape velocity stars aligned and decreed April, precisely, was the month of durable emergence.

 

Back to the Jobs Day Macro Grind ….

 

The narrative foil for a poor payroll print this morning is the Verizon strike which involved 36K workers and ran from April 13th to May 30th, including the reference period for the Establishment Survey.

 

Strength In Numbers - jobs pig cartoon 02.05.2016

 

In principle, the impact to headline NFP should flow through lower employment in telecom and potentially drag on any measure derived from the Establishment Survey, including average hourly earnings and aggregate hours worked. 

 

In practice, it probably just adds to the noise and mania of the day and provides anecdotal ammo for bulls and bears to both claim victory on a soft-to-middling number.

 

If it’s soft, the bears were right on growth and the labor cycle slowing. But, but … goes the bullish rejoinder … it doesn’t really matter because it was negatively distorted so it should be discounted and looked past.

 

The lone loser scenario given prevailing expectations is for bears on a blowout number. 

 

But then, of course, they can just say that the strength raises the probability of a policy blunder as strong dollar deflation and declining growth/inflation expectations drive asset price deflation on the other side of misguided hawkishness. 

 

If that’s difficult to follow, it breaks down to something like this:

 

  • Bad = good
  • Middling = great
  • Good = bad (…or maybe good, depending on your duration)

 

That’s not to say that neither argument is credible, it’s just that the narrative parading is proactively predictable. Much of what we do is engaging and impactful but, at times, sophistry, spurious activity and silliness predominate.

 

I’m not sure where I’m going with this so let’s just turn it back to today’s data:

 

OMG, deceleration is so Trend-y right now! Inclusive of whatever we get in terms of the Verizon distortion, the rate-of-change slowing in the labor cycle will continue. By the numbers, unless we get something >278K (consensus is at 160K vs 160K prior) then employment growth will register another sequential deceleration. And unless we get something >698K then the peak rate-of-change recorded in February of last year will remain rearview.

 

Dude, quit getting your pro-cyclicality on my portfolio! Labor economists, FOMC Chairwoman included, expects NFP gains to slow to ~75K as labor market slack diminishes and moves towards just needing to absorb new entrants. Implicitly then, a crawl to sub-100K NFP is part of the medium-run forecast and embedded in the calculus around the “probable” continuation of the tightening cycle – despite such a dynamic confirming the late-cycle’ness of it all. Countercyclical positioning should complement procyclical policy action.   

 

Godot’s Cycle: As we’ve highlighted, just because we’re charged with generating high-frequency macro commentary doesn’t mean the slower, temporal progression of the cycle ceases to exists. As the Chart of the Day below illustrates, our larger, late-cycle point is simply that once we roll past peak rate-of-change in payroll growth, it’s a one way street towards convergence with 0%. The period of the cycle is years and historical precedents suggest some further runway in the present employment expansion but the slope of the line has now been negative for 15 months and the baseline expectation should be for that to continue to play itself out in autocorrelated fashion to the downside.   

 

Inside Out: We care about the headline Payroll number to the extent it’s a focus for policy makers. Internally we care about the internals of the employment report because it gives us a preview of what the official income growth data (& consumption growth by extension) will look like when its reported later in the month and because it provides some insight to a preview of the ISM data in the subsequent month. Look at the sum of aggregate hours growth and hourly earnings growth in the NFP release for the directional read on income and consumption growth and look at aggregate hours worked in manufacturing for the directional read on industrial production in the manufacturing sector (the biggest industry component in the Industrial Production report).

 

Mix Matters: Wage inflation has shown some modest mojo in recent months but has broadly disappointed expectations and conventional Phillips Curve modeling for years. Thinking about structural dynamics, I think there are a couple factors to keep in mind, both of which are modest-to-moderately deflationary.

  • Demographic: Compositional change in the labor force is as pronounced as it’s been since Boomers matriculated through prime working age. The turnover associated with the replacement of higher wage, Boomer retirees with younger, comparably lower-wage full-time workers is disinflationary – even if total hiring is strong and the labor market conditions are taut by historical standards.
  • Labor Participation: To the extent discouraged workers become encouraged and the cyclical gap in the labor force participation rate closes, the impact will be disinflationary. Collectively, the skill-sets of sidelined and long-term unemployed workers are not those driving the marginal change/acceleration in wage growth.   

 

On this day last year, my kids pulled the fire alarm at the town hall and forced a 2-hour evacuation of the building … in the rain. On this day next year we’ll be 12 more months into the payroll growth slowdown, the black line in the chart will be lower and the red bar more ominous.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.75-1.90%

SPX 2045-21214

NASDAQ 4

VIX 12.51-16.82
USD 95.01-96.04 

 

Best of luck out there today, 

 

Christian B. Drake

U.S. Macro Analyst

 

Strength In Numbers - CoD employment Growth


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