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CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound

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.

 

"... The FTSE has largely shaken off the impact of BREXIT and is now approaching 52-week highs. The British pound on the other hand remains at close to 52-week lows and has barely budged since collapsing after the June 24th referendum. Perhaps no currency is an island?"

 

CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound - 07.12.16 chart


The Island

“No man is an island entire of itself, 

Every man is a piece of the continent, a part of the main.”

-John Donne

 

A group of our teammates are in London this week and, as they are discovering, the United Kingdom is once again becoming largely an island.  It was barely three weeks ago, but the referendum on June 24th has set in motion a series of events that are likely to negatively impact business activity in the U.K. and Europe proper for some time to come.

 

Interestingly, the OECD actually suspended publication of its monthly leading indicators based on Brexit saying:

 

“The CLIs cannot…account for significant unforeseen or unexpected events, for example natural disasters, such as the earthquake, and subsequent events that affected Japan in March 2011, and that resulted in a suspension of CLI estimates for Japan in April and May 2011.

 

The outcome of the recent (23 June) Referendum in the United Kingdom is another such significant unexpected event, which is affecting the underlying expectation and outturn indicators used to construct the CLIs regularly published by the OECD, both for the UK and other OECD countries and emerging economies.”

 

So the moral of the story is: if you don’t like the numbers, just suspend reporting them. That’s one way to deal with adversity anyway. Practically speaking, it is pretty difficult to call Brexit an unforeseen event. Perhaps it was viewed as improbable, but hardly unforeseen.

 

The Island - Italian bank cartoon

 

Back to the Global Macro Grind

 

The FTSE has largely shaken off the impact of BREXIT and is now approaching 52-week highs. The British pound on the other hand remains at close to 52-week lows and has barely budged since collapsing after the June 24th referendum. Perhaps no currency is an island?

 

In the short term, the stock market may be getting this close to right. The dramatic fall in the pound makes British exports very cheap and since the unwinding of Britain’s membership will take some time, the more than 50% of British exports that go to the EU will remain intact. Over time these exports will be at risk, or subject to some level of tariff.

 

Growth in Britain was questionable at best leading up to the referendum. In fact, the quarterly survey by the British Chamber of Commerce, based on the responses of 8,200 firms, highlighted this anemic growth point this morning. According to the survey, several key indicators remain at low levels with “a fall in domestic and overseas sales in the services sector and manufacturing at historic lows.”

 

Back on the continent, the ECB’s Hansson, in an interview with the Wall Street Journal, continued to affirm the view the Brexit will be a headwind for Eurozone growth. The BOE minutes that were released over night, make a very similar point and indicate the BOE is “ready to take action.” So if there is a collective takeaway, it is that interest rates in Europe are likely stay lower for perhaps much, much longer. (And we haven’t even started to talk about Italian banks ...)

 

Speaking of central banking, the Japanese are turning to The Bernank for input. Yesterday, former Fed Chairman Ben Bernanke reportedly met with BoJ Governor Kuroda. This comes at a time when the Japanese are experience lower than expected growth, lower than expected inflation, and also contemplating ending or slowing their bond repurchase program as they come to the “end of the bond market.” It may not be long before we see helicopters over Japan dropping money...

 

The “unforeseen” event that might require the OECD to stop publishing numbers on the U.S. is probably related to the election. Specifically, this week the Never Trump forces have their last shot at derailing his candidacy. As our colleague JT Taylor from our Washington, DC office writes in his morning Capital Brief note (email if you’d like to be added to the distribution):

 

“With less than a week to go until the convention, anti-Trump forces are scrambling faster than ever to dethrone the presumptive nominee. Removing Donald Trump may be their main objective, but another option is being weighed – attempting to select his veep akin to an arranged marriage. The nominee's running mate is still technically decided by an independent delegate vote and delegates have no obligation to support the nominee's choice. The Rules Committee is set to meet later this week to decide convention rules and the party platform, and we doubt any coup will succeed, but this could get interesting depending on Trump’s highly anticipated pick reportedly coming at the end of this week.”

 

So this week will basically be the last chance to stop Trump, but both JT and our colleague former Secretary of Energy Spencer Abraham, who formerly served on the Rules Committee, believe this is much ado about nothing and Trump will march on uncontested. Regardless, the Republican Convention is likely to make for some interesting T.V. next week.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.33-1.52%

SPX 2087-2154

VIX 12.61-20.45 
USD 95.17-97.01 

Gold 1 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

The Island - 07.12.16 chart


July 12, 2016

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.52 1.33 1.43
SPX
S&P 500
2,087 2,154 2,137
RUT
Russell 2000
1,030 1,196 1,179
COMPQ
NASDAQ Composite
4,825 5,020 4,988
NIKK
Nikkei 225 Index
15,112 16,260 15,708
DAX
German DAX Composite
9,307 9,939 9,833
VIX
Volatility Index
12.61 20.45 13.54
USD
U.S. Dollar Index
95.17 97.01 96.59
EURUSD
Euro
1.09 1.12 1.10
USDJPY
Japanese Yen
100.20 105.06 102.83
WTIC
Light Crude Oil Spot Price
43.61 47.22 44.55
NATGAS
Natural Gas Spot Price
2.60 2.99 2.71
GOLD
Gold Spot Price
1,305 1,386 1,356
COPPER
Copper Spot Price
2.05 2.21 2.14
AAPL
Apple Inc.
93.51 98.30 96.98
AMZN
Amazon.com Inc.
717 760 753
NFLX
Netflix Inc.
87.01 101.02 94.67
GOOGL
Alphabet Inc.
681 730 727
JPM
J.P. Morgan Chase & Co.
57.04 63.20 62.27
GM
General Motors Co.
27.23 31.14 30.13



Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


The Macro Show with Neil Howe Replay | July 12, 2016

CLICK HERE to access the associated slides.

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


About Everything | REPLAY: Driverless Cars: Unsafe at Any Speed?


In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the future of driverless cars, assessing potential pitfalls that could ultimately delay the adoption of fully-autonomous vehicles.

 

"Yes, the 'low-hanging fruit' of semiautonomous driving has already been plucked," Howe writes. "But full autonomy requires infallible higher-order thinking, a golden apple which will prove difficult—if not impossible—to grasp anytime soon."

 

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

 

 


JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2

 

“Tell the truth, work hard, and come to dinner on time.“

    -  Gerald R. Ford

 

FRENEMIES: Hillary Clinton and Bernie Sanders are set to stump together later today in NH in an attempt to unite the Democratic party just two weeks ahead of Philly. The joint appearance comes just days after Sanders and his lieutenants secured several progressive wins on the convention platform: climate change, health care and a minimum wage increase, as well as a major loss on getting the party to oppose the TPIP given the president’s support of the pact. Everyone will be all smiles on the podium as Sanders is set to finally throw his weight behind Clinton after weeks of high level overtures and concessions, but the jury is still out on how enthusiastic Sanders will be on the hustings this fall.

 

FISCAL YEAR FUNDING FIASCO: If you believed there was any chance of Congress agreeing on its annual spending bills this year, forget it – it’s time to focus on avoiding a government shutdown. As we mentioned numerous times throughout the past few months, the process of moving individual appropriations bills was limping along with some progress in each chamber, but with Congress about to call it quits for the summer, almost all hope has been lost. Republicans have now shifted their attention to a timeline for a stopgap spending bill they would need to move before the end of the fiscal year on September 30.

 

HOOSIER PICK?: Indiana hasn’t gotten this much attention since Rudy got playing time - former Democratic Senator Evan Bayh is now launching a comeback bid in what’s now expected to be a hotly contested Senate race, upending the landscape for a seat Republicans expected to hold easily this fall. Bayh has been hard-pressed to run since he left the Senate in 2010 and currently holds a rock-solid war chest of $10 million. The state may still run red, but don’t expect it turn overnight – it’s now a main focus for Republicans. Speaking of decisions...Donald Trump is also set to return to the state that put him over the top back in May - though this time it will be arm-in-arm with Governor Mike Pence who is at the top of Trump’s veep shortlist.

 

SPEAKER ENGAGEMENT: Speaker Paul Ryan has finally agreed to speak at the convention, becoming the most notable stumper on a somewhat atypical lineup. Ryan’s speech is expected to be penned by Ryan himself and will focus on the House Republican agenda and the sharp contrast between Republican ideals and another term of progressive Democratic policies. Expect Ryan’s speech to be more of a pitch for the party than a pitch for the nominee.

 

CONVENTION COUP?: With less than a week to go until the convention, anti-Trump forces are scrambling faster than ever to dethrone the presumptive nominee. Removing Donald Trump may be their main objective, but another option is being weighed – attempting to select his veep akin to an arranged marriage. The nominee's running mate is still technically decided by an independent delegate vote and delegates have no obligation to support the nominee's choice. The Rules Committee is set to meet later this week to decide convention rules and the party platform, and we doubt any coup will succeed, but this could get interesting depending on Trump’s highly anticipated pick reportedly coming at the end of this week.

 

RETRANS CONSENT FIGHT FOCUSED ON INTERIM CARRIAGE MANDATE: Our Telecommunications-Media Policy Analyst Paul Glenchur shared his insight on the uphill battle the cable operators are facing in their fight for interim carriage mandates in the retrans disputes. You can read his piece here.

 

BREXIT: WHO’S PARTYING: Our geopolitical analyst Dan Christman shared his insight on the United Kingdom’s exit from the European Union and who the real winners are. You can read his piece here.

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%
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