Ahead Of Today's Jobs Report | Commodities: Bullish Or Bearish?

Ahead Of Today's Jobs Report | Commodities: Bullish Or Bearish? - reflation cartoon 10.13.2015


"Most things Commodities 'Reflation' have one thing to thank in 2016, and that's #GrowthSlowing => Dovish Fed => Down Dollar," Hedgeye CEO Keith McCullough wrote earlier this morning. "But what if the jobs print is 'good' (albeit slowing in TRENDING rate of change terms)? Dollar Up, Commodity Reflation Down?"



McCullough continues: "With CRB Index and Oil -5% and -10%, respectively, in the last month I’m sure glad I didn’t chase those April-May reflation charts. To be continued…"


CHART OF THE DAY: This Won't Help Slowing Jobs Growth

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


"... One relationship we re-highlighted on the call  – and one worth highlighting again here since it’s Jobs day – is the relationship between Temp hiring and peak Employment.   


The temporal procession looks like this: Temp Hiring Peaks => Jobs Openings Peak => Total Employment Peaks


Specifically, Temp hiring has lead the peak in Job Openings by 9 and 8 months, respectively, over the last two cycles and Job Openings peak shortly ahead of the peak in Total NFP."



CHART OF THE DAY: This Won't Help Slowing Jobs Growth - 7 8 16 Temp COD

Just A Vibe

“I’m just a vibe, man … that you can’t find anywhere else”



I like that quote.  It’s a case study in verbal economy and connotive efficiency. 


It perfectly conveys everything it’s meant to without having to say anything specific.  And it’s equally well applicable to any facet of life. 


There’s no right recipe for Vibe creation but everyone knows it when they see it.   


If you can birth and sustain a vibe that can’t be found elsewhere, I’m pretty sure you will end up on the right side of life. 


Yesterday, our Chief Vibe Officer and your favorite risk manager’s favorite risk manager (Keith) delivered the wood on our 3Q16 Macro Themes call.


It was another quarter of record participation and we thank you for that.


Just A Vibe - jobs cartoon 06.03.2016


Back to the Global Macro Grind ….


Our 2nd Theme – and one where the vibe has begun to sour - was #ConsumerCredit. 


One can’t talk about consumer debt without also discussing labor as employment and income trends define both the consumer’s capacity for incremental debt and the ability to service it. 


One relationship we re-highlighted on the call  – and one worth highlighting again here since it’s Jobs day – is the relationship between Temp hiring and peak Employment.   


The temporal procession looks like this:  Temp Hiring Peaks => Jobs Openings Peak => Total Employment Peaks


Specifically, Temp hiring has lead the peak in Job Openings by 9 and 8 months, respectively, over the last two cycles and Job Openings peak shortly ahead of the peak in Total NFP.   


The intuition is fairly straightforward: 


Early in the cycle employers are hesitant to onboard full-time workers because of uncertainty around the durability of the expansion. 


This psychology persists as the expansion matures and is augmented by the flexibility to transition temps to full-time employment and by the progressive rise in demand for output that accompanies the upslope of the cycle which, in turn, drives incremental labor demand.   


Slowing demand for output quells demand for temp workers (which are a primary source pool to fill available positions) with the number of advertised available positions adjusting and reflecting that decline on a short lag.  As job openings stall and retreat in response to macro conditions so too does actual hiring. 


Given the rising prevalence of freelance and contract work, the signal flowing from the current stagnation in temp hiring may be higher fidelity than in cycles past. 


Further, in addition to serving as a lead indicator for hiring activity, the trend in temp employment influences the separation side of the labor market. 


Individually and collectively, temp and part-time employment have been at their highest level ever as a share of the labor force (relative to similar points in prior cycles). 


This acts as a depressive force on reported initial jobless claims as these workers carry the highest probability of not qualifying for unemployment benefits.  If their collective share of employment is elevated relative to the historical experience, it should serve to suppress the level of separations implied by the initial claims figures. 


So, watch the temp hiring component in the employment release this morning and the Job Openings figures in next week’s JOLTS release. 


Where else to focus attention?


As we annoyingly harp on every month, from a Trend perspective, the low intensity way to monitor the progression of the cycle is to watch the rate of change in payroll growth.  


We discuss the rate of change in payroll growth a lot because:

  1. 2nd derivative inflections naturally lead the trend in the primary series (i.e. negative rate-of-change in payroll growth eventually leads to declining absolute employment), particularly if the series is autocorrelated and ….
  2. Payroll growth is autocorrelated in the sense that it looks very much like a sine curve or periodic function that smoothly and fully plays itself out in both directions.   


We don’t get a lot of pushback on that.  Mostly because it’s not really an “opinion” on the cycle, it’s simply the empirical reality and the chart is almost impossible to argue with.   


When we get pushback, it’s usually because:

  1. While the rate-of-change is slowing, the absolute #’s are still “good”.  Progressively less good but still ‘okay’.  Absolutism becomes unprofitable slowly, then (very) quickly. 
  2. The cycle takes time to play out.  When we say the labor cycle is past peak and will continue to slow there’s a tendency to translate that directly to a call for imminent recession.  That’s not how it works – big developed market economies don’t just whimsically oscillate from +3% to 0% in rate-of-change terms on big macro metrics like employment and consumption growth.    


Is headline NFP likely to be better in June than in May on an absolute basis?  Yes. 


From a rate of change perspective, the magic numbers are:

  1. 232K:  Anything >232K will = a sequential acceleration in YoY growth
  2. 1,068K (as in >1 million net adds):  That’s what it would take to re-breach the peak rate-of-change in NFP growth observed in February of last year.  Not happening. 


In short, the trending slowdown in employment will remain ongoing.  And, from here, unless wage growth consistently rises more than employment growth slows then aggregate income and consumption growth will continue to traverse their downslopes as well. 


As it relates to wage growth and the effervescent hope for acceleration in that fulcrum policy factor - wage growth has seen some modest mojo recently but it’s important to contextualize the implications.


If we get the wage inflation every Phillips Curve policy maker is looking for, what does that mean:

  1. Late-cycle confirmation: Wage inflation is one of the latest of late cycle indicators.  To the extent it actually manifests, its more writing on the late-cycle wall.
  2. Labor Compensation ↑, Profits ↓:  Payroll growth, while slowing, continues to grow at a premium to productivity growth and unit labor costs continue to rise as a premium to output prices.  That’s the technical way of saying corporate margins are contracting and with the sales/profit recession still ongoing higher labor costs only = ↓ margins.  And with corporate margins still very much elevated on a historical basis the path of least mean reversion resistance remains to the downside.
  3. Rates ↑, Dollar ↑ = Reflation ↓:   As we’ve seen recurrently, hawkish policy and strong dollar deflation serve to deflate global activity and equity prices/multiples.  It also deflates forward growth and inflation expectations – further inflating the #growthslowing trade that continues to get bond bulls paid.   


As Keith highlighted this morning, the open-the-envelope risk on the 10Y this morning is significant:  “Bad jobs report should get you 1.30% UST 10yr; “good” one maybe 1.57% 10yr (1.30-1.57 risk range)”


Whatever the print this morning, the trend conclusion will remain unchanged and elevated volatility and wider risk ranges will continue to characterize the breakdown in the belief system. 


Trades vs Trends, Trees vs Forests, VIX reflecting the Vibe.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.30-1.57%

SPX 2001-2113

VIX 13.12-25.80
USD 95.04-97.11 

Gold 1


Best of luck today,


Christian B. Drake

U.S. Macro Analyst


Just A Vibe - 7 8 16 Temp COD

Early Look

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The Macro Show with Keith McCullough Replay | July 8, 2016

CLICK HERE to access the associated slides.


An audio-only replay of today's show is available here.

JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2

“Conformity is the jailer of freedom and the enemy of growth.”

                               ― John F. Kennedy


CASE CLOSED?: In a surprise turn of events, the State Department has decided to reopen its internal review of the Hillary Clinton email probe despite that fact that DoJ is no longer pursuing criminal prosecution. On top of that, the heated House Oversight hearing was everything we expected and more - FBI Director James Comey withstood a blitzkrieg of detailed questioning as he was being pressed hard for answers by Republicans on the House panel. We may be done with oversight, but that doesn’t mean House Republicans will shut the book completely. Attorney General Loretta Lynch will head to the Hill next week to face the House Judiciary Committee, where we expect that Committee to double down on questions regarding her little tete-a-tete with Bill Clinton. To add insult to injury, Republicans are also floating legislation to block Clinton from obtaining the security clearance granted to candidates following their conventions.   


KING OF THE HILL?: Trump held court on Capitol Hill yesterday with more than 200 House Republicans and more than handful of Sass-e Senators. The packed House, which included Speaker Paul Ryan, was fully engaged as Trump professed to stand for the same values as many of them, highlighting an overhaul of the tax code, the repeal of Obamacare, and vowing to unify the party by doing whatever it takes. On the Senate side, the meeting was a bit more contentious and a handful of Senators challenged Trump and his controversial statements (about their fellow colleagues and then some) and stances on trade and immigration, which run counter to everything they stand for. Overall, mixed reviews and some progress, but despite continued differences and angst, Republicans around the nation are realizing the need to unite now more than ever.


CAN TRUMP BE DUMPED?: The push to repeal and replace Donald Trump is heating up, but hasn't yet reached the boiling point. For that to happen, the anti-Trump camp needs the backing of one-quarter of the 112 Convention Rules Committee members. Though nothing is set in stone until they meet privately next week, some members are being swayed to revolt - whether they admit it publicly or not. If the effort makes it to the full convention, it would need half (1,237) of all the delegates to pass. At this time, about 900 delegates are in play, meaning anti-Trumpers would need a majority to block the nomination. The measure would undoubtedly create chaos within the party and be a colossal embarrassment in front of millions of viewers - having delegates fight over a nomination long viewed as settled. Even after the dust settles, the party would be left with a more important question – what do we do now?


SMELLING BLOOD IN THE WATER: The Democratic Congressional Campaign Committee is ready to break the bank on House elections this fall – planning to spend millions on ads labeling the Republican party as the party of Trump. The plan is to target 10 incumbent Republicans in areas where Trump has struggled - including Denver, San Antonio and the Chicago suburbs. The message is simple – paint Trump’s vision as “party over country.” Democrats entered the cycle expecting to net around 10 seats and barely recovering from their historically low current numbers, but further effects from the Trump trickle down have already pushed that number into the teens, giving it the potential to hit closer to 20.  


GET YOUR BUG SPRAY READY: President Obama has made it his personal mission to obtain Zika funding before Congress departs for its seven-week summer recess next week, but don’t bet your stockpile of OFF! on it. The Senate and House both have just six legislative days left in session and Senate Majority Leader Mitch McConnell vows to only vote on the Republican Zika funding package that the White House has threatened to veto. The $1.1 billion bill, which uses funding from Obamacare and targets Republican’s favorite whipping boy - Planned Parenthood, passed the House last month but was later blocked in the Senate. Don't let the screen door hit you in the back on the way out.


INVITE | EXPE Best Idea Long | Call TODAY at 11am EDT

The Hedgeye Internet & Media and Gaming, Lodging, and Leisure (GLL) teams will host a conference call TODAY, July 8th at 11am EDT to present EXPE as a new Best Idea Long. 


  1. IT’S LARGELY A COST STORY: EXPE’s effective EBITDA target is much lower than its stated guidance range after considering specific inorganic tailwinds.  EXPE could hit that target largely on the cost side alone through its strategy to cut redundant/duplicate costs, but it also has two big levers it can pull that could drive upside to its target; neither of which has received much attention.  In short, mgmt is largely in control here.
  2. PAY TO PLAY: The AWAY model transition presents a considerable near-term opportunity.  While there is some execution risk from pushback amongst AWAY’s current subs, we will detail why EXPE likely holds all the cards here.  Timing issue may curb the 2016 opportunity, but our analysis suggests that very small progress with the transition will go a long way toward proving out EXPE's EBITDA target and validating the bull-case narrative.  Once again, mgmt is largely in control here as well.
  3. THE END ISN’T NIGH: We suspect most outside of the sell-side are already bracing for softening travel trends.  Mgmt had already guided to decelerating room night growth through 2016 and cautioned of softening travel trends at a recent investor event, which was corroborated by the STR data that we’re all watching.  But there is another layer to the current travel trends that is going largely unnoticed.  Further, EXPE may currently be the OTA best positioned to weather any emerging global travel headwinds, which we will also discuss during our call.  

Attendance on this call is limited. Ping  for more information.

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