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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, rates and bond spreads, key currency crosses, and commodities. 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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Daily Market Data Dump: Friday - equity markets 8 5

 

Daily Market Data Dump: Friday - sector performance 8 5

 

Daily Market Data Dump: Friday - volume 8 5

 

Daily Market Data Dump: Friday - rates and spreads 8 5

 

Daily Market Data Dump: Friday - currencies 8 5

 

Daily Market Data Dump: Friday - commodities 8 5


August 5, 2016

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.60 1.40 1.51
SPX
S&P 500
2,145 2,177 2,164
RUT
Russell 2000
1,195 1,225 1,213
COMPQ
NASDAQ Composite
5,047 5,199 5,166
NIKK
Nikkei 225 Index
16,084 16,533 16,254
DAX
German DAX Composite
9,988 10,385 10,227
VIX
Volatility Index
11.75 15.16 12.42
USD
U.S. Dollar Index
94.50 97.25 95.72
EURUSD
Euro
1.09 1.12 1.11
USDJPY
Japanese Yen
99.27 103.90 101.23
WTIC
Light Crude Oil Spot Price
39.08 43.62 41.93
NATGAS
Natural Gas Spot Price
2.60 2.93 2.83
GOLD
Gold Spot Price
1,335 1,390 1,367
COPPER
Copper Spot Price
2.15 2.23 2.17
AAPL
Apple Inc.
99.99 109.44 105.87
AMZN
Amazon.com Inc.
725 775 760
NFLX
Netflix Inc.
87.33 95.88 93.44
JPM
J.P. Morgan Chase & Co.
62.26 64.86 64.56
PCLN
Priceline Group
1330 1391 1359
TSLA
Tesla Motors
215 236 230
XOP
SPDR S&P Oil & Gas Explore
32.33 34.95 34.53


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.


CHART OF THE DAY: Pre-Jobs Report Insights

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.

 

"... Global demand and domestic output growth are down. And employment growth in excess of output growth – which remains the case currently- is paid for via lower corporate profitability. 

 

Absent improved productivity, “strong” employment trends = further margin compression = continued profitability pressure against a backdrop of forward earnings growth estimates in the mid-teens. We continue to think those expectations need to be marked lower."

 

CHART OF THE DAY: Pre-Jobs Report Insights - Labor vs. Output CoD2


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After-Party

“After the Show is the After Party”

-Jay-Z

 

My after-party life is past peak.

 

I’ve had some solid late night sessions with some unlikely characters ….. DMX, Dave Chappelle, Snoop Dogg, Pat Morita (Mr. Miyagi), that homeless guy I always used to see down the street ….

 

I’m pretty sure I wasn’t even old enough to be where I was for some of those but no harm, no foul and all that. Life is a collection of moments and I’ve made an effort to amass a menagerie of covetable memories. 

 

The after-party can be the funnest part of the night.  

 

It’s also the nursery for ill-conceived antics and subsequent regret.

 

After-Party - jayz

 

Back to the Global Macro Grind

 

We’ve been on this whole #GrowthSlowing thing for ~6 qtrs now.

 

Frankly, it’s getting kind of lame. Not wrong or unprofitable, just progressively less exciting. 

 

My enthusiasm is stagnating, secularly.

 

Over those 6 quarters, there’s been a certain recurrent rhythm to my macro inbox flow.

 

For instance, there’s the recurrent, occasional tendency towards an overbearish interpretation of our messaging.  

 

When that inbox sentiment crescendo’s I have to offer the gentle reminder that we are in post balance sheet recession expansion and expansions following Financial Crises are almost always longer in period and lower in amplitude than normal business cycle expansions (i.e. slow & lower for longer) - that is one of their defining characteristics.

 

Growth slowing is part of the cycle. It takes time to play out. Just because we harp on that reality regularly doesn’t mean we expect a recession to start this afternoon. That’s not how #TheCycle works. 

 

We are in month 87 of the current expansion. That compares to a mean and median duration of 50 and 59 months, respectively, over the last century of cycles. And with the Fed projecting continued policy normalization through 2018, they are implicitly forecasting the longest expansion ever.  

 

As rate cuts, QE, QQE, Forward Guidance and NIRP exhaust their utility and the collective global central banking chorus shifts the policy siren song towards fiscal expansion, the cyclical expansion show is coming to a close.   

 

The expansionary after-party is beginning. After-party’s aren’t known for being low-volatility, at least not the good ones.

 

After-Party - Eco Cycles CoD1

 

As Keith highlighted yesterday, the deep simplicity is that for #GrowthSlowing allocations to really stop working you need growth to accelerate.

 

Since it’s jobs day, let’s take a labor-centric perspective on that.

 

First, a quick review of what we already know. The goal here is not to spin a narrative, it’s to just quantitatively frame the set up and the implied growth implications. Remember, I’m a bored growthslowing bear and closet optimist. This is simply the context embedded in the math: 

 

  • Employment = Consumptions Middle-Man | the health and dynamism of the labor market is the primary proxy for the health of the broader Macroeconomy. In a more narrow sense – and the one that matters to GDP accounting and policy makers - Employment is the means to a Consumption and Investment End. 
  • Employment Growth = ↓ | Employment growth peaked in February of last year and has been progressively decelerating. Historically, once we roll off of peak rate-of-change, it’s a one way street towards convergence with zero and economic contraction. We need to add >282K jobs in July to avoid another sequential deceleration in NFP growth. That is unlikely. 
  • Income = ↓ |  Income growth defines the capacity for sustainable consumption growth for most households. With payroll growth slowing and weekly hours largely flat, the modest increase in wage growth has not been enough to offset the deceleration in employment and aggregate income growth has slowed. Remember, wage growth needs to move at a pace equal and opposite to employment slows to maintain the same capacity for consumption. 
  • Income + Credit = ? | While Income growth has slowed, revolving credit growth continued to accelerate until March, helping to support consumption growth in the facing of slowing aggregate income growth. Revolving credit has slowed in each of the last two months but will need pick up to maintain the current pace of spending growth, particularly if the emergent acceleration in wage inflation fails to extend.

 

Let’s consider another dynamic. Policy is labor market dependent both directly and indirectly as an explicit aim of policy is to foster maximum employment and labor market tightening drives the evolution of growth and inflation conditions to which policy must respond. 

 

What is maximum employment?

 

The employed share of the prime working age population (25-54 year olds) is currently 77.8%. 

 

The average over the last 30 years is 78.7% with cycle peaks of 80.2%, 80.3% and 81.9% over the last 3 cycles. 

 

So, unless the argument is that a structural shift has occurred, we seemingly still have some hay to bail to get to maximum employment. But the unemployment rate is already at the generally accepted NAIRU rate of 4.9%.

 

If we use the average peak employment-to-population ratio over the last three cycles (~81%) as our maximum employment bogey, that implies an additional 4.04MM jobs from current levels. 

  • Assuming a static labor force, that 4MM incremental jobs implies an Unemployment Rate of 2.4%. That doesn’t seem plausible.
  • Under a more reasonable assumption that half the jobs gains come from the currently unemployed and half come from re-entry of workers into the labor force, the implied Unemployment Rate = 3.6% with an uptick in the Labor Force Participation Rate to 63.5% (from the current 62.7%)

 

Maybe that’s more realistic but any residual labor slack would transition to full tautness and ….

 

  • The NFIB’s Jobs Hard to Fill Index remains at cycle highs
  • Job openings per available worker (Unemployed + Not in Labor Force but want a job) are already at an all-time low
  • Small Business Compensation plans are at cycle highs

 

Can we gain anywhere near that amount of jobs without wage inflation accelerating? Probably not.

 

But doesn’t that development become self-defeating if accelerating wage inflation drives tighter policy and a probable kibosh on what’s left of the labor cycle - taking the fledgling recover in the employment-to-population ratio with it.  

 

The employment participation party would end before it really started and as the employed share of the prime working age population peaked and rolled over before even getting to trough levels observed over the prior three cycles.   

 

Also, remember that domestic employment growth is coming in the face of decelerating global growth, an ongoing recession in capex spending and tightening corporate and consumer credit conditions (per the 3Q Senior Loan Officer survey). 

 

Global demand and domestic output growth are down. And employment growth in excess of output growth – which remains the case currently- is paid for via lower corporate profitability. 

 

Absent improved productivity, “strong” employment trends = further margin compression = continued profitability pressure against a backdrop of forward earnings growth estimates in the mid-teens. We continue to think those expectations need to be marked lower.  

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.40-1.60%

SPX 2145-2177

VIX 11.75-15.16
EUR/USD 1.09-1.12
Oil (WTI) 39.08-43.62

Gold 1

 

Hit the dance floor, take a shot for every rhetorical pivot from the Fed, enjoy the after-party. It might not be easy to navigate but it definitely won’t be boring.

 

Christian B. Drake

U.S. Macro Analyst

 

After-Party - Labor vs. Output CoD2


YELP | Thoughts into the Print (2Q16)

Takeaway: YELP is basically a binary event now: take-out or implosion. Can't yet refute the former, but aiming to revisit the short in 2H

KEY POINTS

  1. ALGO/PROMO NOISE: The two themes from 1Q (note below).  The algorithm change should be a material ARPU tailwind through 2016, especially since YELP was able to drive accelerating 1Q ARPU growth despite the drag from the surge in new Local Advertising Account (LAA) growth, which was partially driven by discounting.  The algo change may have had a limited impact in 1Q depending on when YELP implemented it, so there could be an incremental benefit in 2Q.  The trajectory of its promotional LAAs is the bigger question.  There’s no guarantee these LAAs stayed on in 2Q given YELP’s historical attrition issues; especially since we doubt many (if any) of these promo LAAs are under contract.  The other question is how many more promo LAAs are left to capture since distribution isn't an issue for self-serve (e.g. email blasts).  YELP may have already courted the bulk of those interested self-serve LAAs with the 1Q promo, so we can’t assume the 1Q LAA surge will continue through 2016.  So while the algo stunt may get YELP over the line in 2Q, 2H16 consensus revenue largely depends on whether it can sustain its self-service promo trajectory, which we doubt will happen.
  2. MASKING MAJOR INFLECTION? YELP suggested that a “meaningful percentage” of its 1Q16 account growth was driven by these promo LAAs.  If that percentage was anything over 10%, then its 1Q16 new LAA growth (ex promos) decelerated again on a y/y basis; if that percentage was over 25%, then new LAA growth declined on y/y basis.  Either way, it's a major concern given that its salesforce growth has been accelerating on a y/y basis since 1Q15.  But if it is the latter, then the YELP story took a major turn for the worse.  Remember how YELP’s model works; it must continually drive new LAA growth in excess of its rampant attrition, which we estimate is nearly all of its LAAs on annual basis.  That also means that whatever YELP reports as its LAAs in any given quarter is largely comprised of accounts it signed in the LTM.  So if new LAA growth (ex promos) did decline on a y/y basis, and if that continues through 2016, then it could be facing a precipitous deceleration, if not declines, in 2017 revenue growth depending on its promotional LAA growth.  But even then, those accounts generally come with lower ARPU by mgmt's own admission, and likely a shorter life (contract?), which means they can't effectively compensate for YELP's churn.  
  3. AUGUST 9th? We find it odd that YELP is releasing 2Q results almost 2 weeks later than usual.  Maybe we’re being paranoid, but we can’t see a reason for such a long delay unless mgmt was actively trying to work out some (any) deal before issuing 2Q results, especially considering Point 2 above.  While we shrugged off the possibility of a take-out last year, YELP’s deflated stock + 1Q results makes it an easier pitch this year since the acceleration in revenue/LAA growth may present YELP as a challenged but recovering business (vs. a dying business model) that might work better under someone else’s umbrella.  Yes, that sounds dumb to us too, but how many acquisitions have we all seen that just don’t make any sense.  But we wouldn’t be chasing a take-out regardless of how hard YELP may be shopping itself; especially since this is just speculation.  If YELP introduces any new red flags on the print/guide, we suspect much of its newfound optimism to get sucked out of the stock, and most of its potential suitors to lose interest as well.  

 

 

YELP | More Red Flags (1Q16)
05/06/16 08:55 AM EDT
[click here]

 

YELP | Thoughts into the Print (2Q16) - YELP   LAA v s. Sales 1Q16 scen

YELP | Thoughts into the Print (2Q16) - YELP   Prior vs. TTM lost 1Q16

YELP | Thoughts into the Print (2Q16) - YELP   Current vs. TTM new 1Q16

YELP | Thoughts into the Print (2Q16) - YELP   mgmt lie slide 1Q16

 

 

Let us know if you have questions, or would like to discuss in more detail.  

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

 


Central Planning 101: BoE Crushes The People's Purchasing Power

Takeaway: BoE cut rates by to 0.25%, increased its QE target to £60 billion, which included £10 billion corporate bond purchases. ↓ GBP, ↓ 10yr Gilt

Carney did his best to devalue the purchasing power of The People yesterday (a little “market security” in exchange for what was a great driver for the UK consumer economy in 2015, #StrongPound). He got the GBP/USD down to $1.31 while blasting the 10yr Gilt Yield down to 0.63% where it’s holding this morning, down -14bps month-over-month.

 

Central Planning 101: BoE Crushes The People's Purchasing Power - pound 8 5

UK 10-year Gilt Yield

Central Planning 101: BoE Crushes The People's Purchasing Power - uk gilt 8 5

 

Editor's Note: The snippet above is from a note Hedgeye CEO Keith McCullough wrote for subscribers this morning. Click here to learn more.


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