Daily Market Data Dump: Monday

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




Daily Market Data Dump: Monday - equity markets 8 8


Daily Market Data Dump: Monday - sector performance 8 8


Daily Market Data Dump: Monday - volume 8 8


Daily Market Data Dump: Monday - rates and spreads 8 8


Daily Market Data Dump: Monday - currencies 8 8


Daily Market Data Dump: Monday - commodities 8 8

August 8, 2016

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10-Year U.S. Treasury Yield
1.60 1.45 1.59
S&P 500
2,148 2,188 2,183
Russell 2000
1,198 1,236 1,231
NASDAQ Composite
5,101 5,228 5,221
Nikkei 225 Index
16,036 16,798 16,254
German DAX Composite
10,080 10,515 10,367
Volatility Index
11.29 15.16 11.39
U.S. Dollar Index
94.60 97.51 96.17
1.09 1.12 1.11
Japanese Yen
99.42 103.93 101.79
Light Crude Oil Spot Price
39.13 43.37 41.80
Natural Gas Spot Price
2.59 2.93 2.77
Gold Spot Price
1,315 1,385 1,344
Copper Spot Price
2.15 2.23 2.15
Apple Inc.
100.62 109.95 107.48
734 778 766
Netflix Inc.
89.84 97.88 97.03
J.P. Morgan Chase & Co.
62.26 66.86 66.30
Priceline Group
1338 1426 1414
Tesla Motors
215 237 230
SPDR S&P Oil & Gas Explore
32.33 35.39 35.05

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The Key Takeaway From Friday's Jobs Report & What It Means For 10-Year Treasury

Takeaway: After Friday's rate of change slowdown in the Jobs Report, the risk range on the 10-year Treasury is 1.45-1.60%.

The headline jobs number was “good” while the rate of change in non-farm payrolls slowed again to 1.72% versus 2.30% in February 2015. That got U.S. Treasury 10-year to tap the top-end of my 1.45-1.60% risk range. The signal says that’s probably it with 1% GDP being goldilocks, for now.



Here's the Key NFP rate of change chart:


The Key Takeaway From Friday's Jobs Report & What It Means For 10-Year Treasury - nfp 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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CHART OF THE DAY: A Closer Look At Earnings "Beats" Vs. Earnings "Growth"

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... What is American Goldilocks?


  1. Forget the 2-3-4%, we need GDP of 1% (but definitely not 0%)
  2. Earnings to “beat” beaten down expectations (and still be negative y/y)
  3. A Dovish Fed that pretends to be hawkish so they can go back to dovish
  4. The “but, but… the labor market is good” political narrative
  5. Stocks and Bonds near their highs for the YTD, at the same time


Yep. Don’t worry. We’re all in the 1% now."


CHART OF THE DAY: A Closer Look At Earnings "Beats" Vs. Earnings "Growth" - 08.08.16 EL chart

American Goldilocks

“If you want to be the best, you have to do things other people aren’t willing to do.”

-Michael Phelps


I don’t know about you, but I absolutely love watching the Olympics. As a boy (pre internet), I used to write down every medal for every country, comparing my totals to what I could find on TV. I got used to penciling in American Gold. #MaryLouRetton!


Now my 8 year-old son Jack keeps score for me on Google. After Michael Phelps won a record setting 19th Gold last night (I was in bed), that took the American medal count to 12 vs. China and Australia at 8 and 6, respectively.


I am Canadian. We’re in 18th place with 1 Silver and 1 Bronze. But somehow we beat USA’s Men’s Volleyball Team in straight sets yesterday. That was a golden moment for Team Canada. Yes, since we don’t win many golds, we’re in it for the moments!


American Goldilocks - olympic medal


Back to the Global Macro Grind


Gold itself got hammered on it, but in what seemed like a golden jobs report moment for American Goldilocks last week, both the SP500 and Nasdaq closed at all-time highs of 2182 and 5221, respectively.


I wrote those down too.


Since I’m short the Nasdaq in Real-Time Alerts right now, that sucked (for me). That said, memories can be short. If you were shorting the all-time highs in most things US Equities in July/August of last year, you were feeling golden come the February 2016 low.


What is American Goldilocks?


  1. Forget the 2-3-4%, we need GDP of 1% (but definitely not 0%)
  2. Earnings to “beat” beaten down expectations (and still be negative y/y)
  3. A Dovish Fed that pretends to be hawkish so they can go back to dovish
  4. The “but, but… the labor market is good” political narrative
  5. Stocks and Bonds near their highs for the YTD, at the same time


Yep. Don’t worry. We’re all in the 1% now.


And since our predictive tracking algo for US GDP is around 1% for Q3, why can’t this continue? Especially if the next jobs report goes from “good” to bad again, bonds (and stocks that look like bonds) are going straight back up.


From a US stock market perspective, here’s what I wrote down for last week:


  1. SP500 +0.4% last week to +6.8% YTD
  2. Nasdaq +1.1% last week to +4.3% YTD
  3. Financials (XLF) +1.6% last week to 0.8% YTD
  4. Tech (XLK) +1.3% last week to +9.9% YTD
  5. Consumer Discretionary (XLY) -0.1% last week to +4.4% YTD
  6. Utilities (XLU) -2.7% last week to +17.2% YTD


In other words, it was mostly a hopeful move higher in US interest rates that drove the Sector Style Factor performance last week. Since most macro tourists don’t do the rate of change thing, they saw a “good” jobs report as great. Bond Yields rose on that.


The US Treasury 10yr Yield was +14 basis points on the week to 1.59%. That drove the Financials out of the red, temporarily, for 2016. And it slapped a big correction on the biggest macro gold medal winners YTD (Utilities, Gold, etc.).


The other big thing that continues to manifest is a #StrongDollar move. That’s something we didn’t have wrong last week:


  1. US Dollar Index +0.7% last week and +2.6% in the last 3 months
  2. EUR/USD down -0.8% last week and -2.8% in the last 3 months
  3. British Pound -1.2% last week and -9.7% in the last 3 months


I’m using the last 3 months for our FX view as that’s when we started getting louder on both Gold and the US Dollar winning the Currency War. A big part of this view has been complimented by our Q3 Macro Theme of #EuropeImploding. While the goldilocks narrative is fun for all things American right now, both the UK and Europe are heading into a protracted recession.


I know, I know. #StrongDollar, Strong Gold (+5.2% in the last 3 months) isn’t exactly a panacea for all things “earnings”… Then again, we need to get to Q3 #EarningsSlowing before we see how sweet American Goldilocks is looking come The Fall.


With the pace of non-farm payroll growth slowing to a new cycle low of 1.72% year-over-year in JUL (vs. +2.1% JUL 2015), the probability continues to rise that jobs growth slows to 0%. And 0% isn’t 1%. That won’t even be in contention for bronze.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.45-1.60%

SPX 2148-2188

NASDAQ 5101-5228

VIX 11.29-15.16
USD 94.60-97.51
EUR/USD 1.09-1.12

Gold 1


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


American Goldilocks - 08.08.16 EL chart

Pentagon OCO Funding Taken Hostage in Washington

Takeaway: Combat ops funding has become political football in debate over increasing all federal spending or only defense spending.

Since the Budget Control Act (BCA) imposed caps on federal discretionary spending in 2013, Overseas Contingency Operations (OCO) funding has taken on greater significance than just funding combat operations.  Considered "emergency" spending, the BCA's established annual budget caps are automatically increased by the amount of funds appropriated for OCO = budget caps effectively do not apply to OCO spending.  The Pentagon received $58.6B in OCO funds in FY 2016, approximately 10.2% of total DoD spending for the year.


Last February the President requested $58.8B in OCO funds for FY 2017 in accordance with the terms of the Bipartisan Budget Act (BBA) of 2015, the two year budget deal which adjusted defense and non-defense discretionary spending caps for FY16 and 17.  However, assumptions used to justify the President's OCO request from last February have since changed, i.e., troops in Afghanistan will only be reduced from 9,800 to 8,800 not 5,500 as planned and US combat activity against ISIS is increasing in Iraq, Syria and now, Libya.  We estimate that these changes to assumptions will cost at least $4B.  


Republican Congressional leaders are clamoring to increase the FY17 OCO request by at least the estimated $4B, but the White House is sticking to the strictest interpretation of last year's budget deal and refusing to accept any additional defense funding, OCO or otherwise, unless non-defense spending is increased by the same amount.  OMB has stated that they are willing to find offsets within the overall defense request and reprogram those funds to the additional war costs. 


Given the summer doldrums and the empty capital city, this specific debate has not gotten much attention but is reflective of the larger division between the Democratic and Republican parties over non-defense spending.  Whereas there is general consensus in Congress, in the Administration and in both major political campaigns that the budget caps on defense spending have to be removed, there is a strong difference in opinion as to whether the caps on non-defense spending should also be lifted. 


While $4B is not "nothing", the amount of money is not the point.  $4B is certainly an amount that can be dealt with in a overall $583B budget (0.6%) that includes many assumptions about future inflation costs, currency exchange rates, the cost of oil, etc which can always be "adjusted" up front since they are not really known costs until after the fact anyway.   The point is that Republicans want to increase defense spending but do not want to increase the caps while the Administration and most Democrats want to raise all discretionary spending caps. 


Both Congress and the Administration have taken advantage of OCO funding's exceptional status outside of the budget caps.  OCO was supposed to be war-related spending but the line between baseline and war-related funding has become very blurry.   The FY 2016 appropriations bill language passed by Congress and signed by the President did not even attempt to maintain the fiction that OCO = war-related spending and simply listed baseline costs as an OCO line item and essentially paid $7.7B in baseline bills with "emergency" funding.  For FY17, the President requested $5.2B in OCO funds for baseline costs.  


In its version of the FY17 appropriations bill the House took the President's request for baseline spending within OCO to a new dimension by providing for the entire $59B requested for OCO but only funding war operations through April 30!   This effectively adds $32B to FY17 baseline accounts using OCO funds, six times what the President requested.  More significantly it means that there would have to be a supplemental OCO appropriation before April 30 that ostensibly would become a must pass bill.   The White House has said it would veto such a proposal and the Senate has opposed the idea.  What actually gets sent to the President will be resolved in conference this fall.


The bottom line for investors is that there continues to be strong upward pressure on the defense budget with consensus that funding must be increased but lots of political games to be played.  Although the current budget expires on September 30, we are looking for a Continuing Resolution (CR) that will maintain federal spending at FY16 levels through the election until at least early December. While there is considerable noise about extending the CR into April, we think that very unlikely unless something dramatic (and unexpected) happens in the election.  The downside to any "normal" CR is the prohibition on new starts, i.e., any changes to the FY16 program, e.g., starting construction of a new ship. We count it as highly probable that soon after inauguration either candidate will come out with a strong stimulus package to be included in the FY18 package for Congressional consideration next spring/summer. 



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