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Capital Brief: Clinton's Conundrum ... & Will The GOP Trust Trump?

Takeaway: Clinton's Conundrum, Trusting Trump?, Procrastination Nation

Capital Brief: Clinton's Conundrum ... & Will The GOP Trust Trump? - capital brief

 

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 sales@hedgeye.com.

CLINTON'S CONUNDRUM

Capital Brief: Clinton's Conundrum ... & Will The GOP Trust Trump? - hillary another

 

Hillary Clinton needs less than 30 delegates to secure the nomination – a sure bet after looking to amass a large chunk of delegates in tomorrow’s primaries in NJ, CA, MT, NJ, NM, ND, and SD. All in, CA remains the biggest prize as Clinton and Bernie Sanders remain neck and neck.

 

If she’s able to edge it out, she’ll hand Sanders a lethal blow – but then what’s in it for Sanders? Sure – he’s corralled and electrified the masses, but his future steps are immensely important. Clinton’s lead in the general election polls over Donald Trump remains slim and when Sanders decides to hang it up – expect Clinton’s numbers to climb – but she’ll need his help getting there.

TRUSTING TRUMP?

Capital Brief: Clinton's Conundrum ... & Will The GOP Trust Trump? - trump pic

 

The Donald Trump trust factor may be the biggest issue facing the Republican party this year and though many Republican leaders have taken their seats aboard the Trump train they know there will be many opportunities for a derailment or two.

 

Senior Republicans are calling Trump’s recent criticism of a Hispanic judge the last straw after promising to make an effort to “lighten” his choice of words when speaking of minorities as Goldwater flashbacks keep them up at nights. If Republicans believe they have a fighting chance this November,  they’ll need to mitigate their trust in Trump to do the right thing – and fast.

PROCRASTINATION NATION

With summer recess nearing and an unfinished budget still looming, Congress returns this week to a full plate. Zika funding has been sitting before Congress for more than three months – House and Senate bills are yet to combine due to political reasons. Puerto Rico is still sinking but sees a glimmer of hope as legislation will hit the Rules Committee later this week, followed by a vote in the House later in the week. With this hanging over Congress’ head, remember – it’s also Appropriations season and we’ve only got five weeks until Congress skips town for a loonnnngg summer recess.


Yikes: Yellen’s Favorite Market Indicator Hits 7-Year Low

 

Hedgeye U.S. macro analyst Christian Drake takes a look at the “Labor Market Conditions Index” which just posted its 5th consecutive month of negative reading (worse since 2009) and what it portends for Fed policy.


Embarrassing... Fed's Lockhart Completely Changes His Tune In Just 34 Days

Takeaway: A month ago, Atlanta Fed head Dennis Lockhart said a June rate was "a real option." Now, he wants the Fed to "be patient."

Embarrassing... Fed's Lockhart Completely Changes His Tune In Just 34 Days - Fed grasping cartoon 01.14.2015

 

“I don’t personally see a lot of cost to being patient to the July meeting at least,” Atlanta Fed head Dennis Lockhart said today. “I think we can be watchful and see how things develop over the next few weeks.”

 

What a difference a month can make. 

 

Way, way back on May 3, 2016 (a.k.a. a month ago), Lockhart called a June rate hike "a real option."

 

Embarrassing... Fed's Lockhart Completely Changes His Tune In Just 34 Days - lock

Bottom Line?

 

These Fed head guys and gals are getting really silly.

 

 


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McCullough: The Most Asymmetric US Corporate Profit Risk (Ever)

 

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough reviews the “Fantasy Island” earnings risk blinding many investors and why second and third quarter earnings for most sectors will be “awful.”

 

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An Update On The Bond Market, #GrowthSlowing & Yellen's Favorite Indicator

Takeaway: The yield on the 10-yr Treasury crashed on Friday's jobs bomb. Plus, an update on Yellen's favorite labor market indicator doesn't look good

An Update On The Bond Market, #GrowthSlowing & Yellen's Favorite Indicator - yellen yoyo

 

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"The 10-yr Treasury yield crashed on Friday's jobs bomb (that was in line with the change in Janet’s favorite labor market indicator index, more on that below) to 1.71%, which implies that A) the data is beating the Fed’s forecasters, big time, YTD and B) if she hikes into this, she’s going to implode all of the illusions of real growth (i.e. the aforementioned reflation trades)"

 

 

More on Yellen's favorite indicator...

 

The "Labor Market Conditions Index" contracted for the fifth straight month to down -4.8% in May. Meanwhile, the prior month was downwardly revised from -0.9% to -3.4%.

 

In other words, not good. 

 

An Update On The Bond Market, #GrowthSlowing & Yellen's Favorite Indicator - yellen s favorite

 

(For more on how the Fed could interpret all of this, check out "5 Charts: How Last Week's #JobsBomb Is Impacting Global Markets.")


5 Charts: How Last Week's #JobsBomb Is Impacting Global Markets

Takeaway: Fed head Janet Yellen could crush markets this afternoon if she doesn't pivot back to dovish in her speech at 12:30pm.

5 Charts: How Last Week's #JobsBomb Is Impacting Global Markets - rate hike cartoon 11.17.2015

 

The latest macro market read through on Friday's #JobsBomb goes like this:

Dovish Fed = Down Dollar = Reflation Up

 

In short, imagine what would have happened to the reflation trade if the jobs report wasn’t a bomb…

 

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"They eviscerated the Dollar on the jobs bomb (and ISM Services slowing print of 52.9 for May) taking USD down -1.6% on the day (massive 1-day move) and ramping up everything that is inversely correlated to it (which, at this point, from Gold to Russian and Australian stocks, are a lot of things) – can they do this daily?"

 

 

To sum up the post #JobsBomb market reaction...

 

 

Take a look at the ramp in gold...

 

 

Meanwhile, in commodity-driven markets abroad...

 

Australian equities popped.

 

 

Australian equities are just one example of the many markets tethered to reflation that are up this morning. Similarly, Oil jumped another +1.1% on the latest thinking that Dovish Fed = Down Dollar. On that, Russian stocks are up +1.7%.

 

Over in Japan, central planners can't stop the bleeding.

 

In the past week, Down Dollar = Up Yen = You guessed it... Down Nikkei (it's still crashing).

 

 

Speaking of crashing... 

 

The same story rippling through Japan is handicapping Italian equities. (Down Dollar = Up Euro = Down FTSE MIB)

 

So where do we go from here?

 

For those of you keeping score, here's the past seven months of frenetic Fed pivots:

 

  1. HAWKISH (December) raising rates in front of a horrible Q1 slow-down (economic and profit cycle)
  2. DOVISH (March/April) trying to undo the hikes with rhetoric, devaluing Dollars to reflate asset prices
  3. HAWKISH (May) post the stock market bounce and Atlanta Fed GDP Tracker rising

 

Now the market is expecting the Fed to go dovish but what if Yellen & Co. don't deliver? A final note on Fed policy from Hedgeye CEO Keith McCullough in this morning's Early Look:

 

"For those of you who get the game we are in, the only thing that matters to macro markets right now is which way the Federal Reserve pivots from here. Post Friday’s Jobs Bomb, not going back to dovish during Yellen’s 12:30PM speech could crush markets."

 

In other words, heads up. It could get ugly.


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