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PREMIUM INSIGHT

About Everything | Q&A with Neil Howe: The Gig Economy is Alive and Growing

About Everything | Q&A with Neil Howe: The Gig Economy is Alive and Growing - gig econ

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the so-called "gig economy."


OPEC Oil Production "Freeze" Talk Will Have Similar Ending ... No Agreement

Takeaway: Target of Freeze Talk is sentiment not production. Saudi Arabia and Iran will not agree because the September timing is too soon.

Editor's Note: Below is a brief excerpt from an institutional research note written by Senior Energy Analyst Joe McMonigle on the resurfacing of OPEC oil production "freeze" speculation. For more information about our institutional research contact sales@hedgeye.com.

 

OPEC Oil Production "Freeze" Talk Will Have Similar Ending ... No Agreement - Oil cartoon 12.28.2015

 

"We’ve seen this movie before: in response to low oil prices, a few producers propose a production freeze designed to talk up crude prices but has no real impact on fundamentals.

 

According to recent press reports, Venezuela, Kuwait and Ecuador are again pushing a production freeze in response to the recent dip in oil prices. Since OPEC meets informally at the upcoming International Energy Forum (IEF) in Algeria on September 26-28, some market participants believe the Production Freeze 2 has real legs pushing prices higher on Monday.

 

However, we believe the sequel to the production freeze will end the same with no agreement in September. We remain highly skeptical that any meaningful agreement will be reached or that it changes the outlook for oil markets. 

 

  • First, the production freeze is not a serious proposal but designed only as a public relations tool to effect sentiment and try to establish an artificial price floor. 
  • Second, Saudi Arabia and Iran will not agree to a production freeze because the September timing is too soon."

 

Additional oil-related Insights written by McMonigle:

 

 

**For more information about our institutional research contact sales@hedgeye.com.


PREMIUM INSIGHT

[UNLOCKED] Fund Flow Survey | One-Two Punch

[UNLOCKED] Fund Flow Survey | One-Two Punch - dollar pic

This is a complimentary research note originally published August 4, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com. "In the past two weeks, domestic equity mutual funds have experienced their two largest withdrawals so far in 2016." 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Daily Market Data Dump: Tuesday

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

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets 8 9

 

Daily Market Data Dump: Tuesday - sector performance 8 9 16

 

Daily Market Data Dump: Tuesday - volume 8 9

 

Daily Market Data Dump: Tuesday - rates and spreads 8 9 16

 

Daily Market Data Dump: Tuesday - currencies 8 9

 

Daily Market Data Dump: Tuesday - commodities 8 9


CHART OF THE DAY: Being The Bears On Emerging Markets

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Senior Macro analyst Darius Dale. Click here to learn more.

 

"... Alas, we should’ve seen broad-based EM reflation coming from a mile away. As rewarding as being the axe on the bear side of EM has been since we authored the call in early 2013 (see: Chart of the Day below) is as shameful as it has felt overstaying our welcome in the YTD."

 

CHART OF THE DAY: Being The Bears On Emerging Markets - 8 9 16 Chart of the Day


Where’s China?

“It does not matter how slowly you go as long as you do not stop.”

-Confucius

 

While we are all well aware of the incredibly thoughtful, oracle-esque nature of Chinese philosopher Confucius and his many proverbs, it’s a bit hair-raising to see him completely nail the current balance of Chinese economic and financial market risks some ~2,500 years after his death.

 

The aforementioned quote pretty much sums up how macro markets have generally priced in Chinese developments throughout much of the YTD. Specifically, one could argue that China hasn’t meant all that much to the consensus macro narrative since January. Indeed, as was the case throughout our latest rounds of client meetings, China has been conspicuously absent on both sides of the bull/bear debate.

 

I guess you could say that China’s ongoing structural economic deterioration doesn’t really matter as long as the yuan and/or entire mainland banking system aren’t imploding today.

 

Where’s China? - Blame China cartoon 08.31.2015

 

Back to the Global Macro Grind

 

Our call on China this year has been as boring as it has been accurate. Recall that at the height of CNY devaluation fears in January/early-February, we fervently remained the other side of the then-consensus view that China was careening towards a currency crisis and banking collapse.

 

From our 1/13 note titled, “Inverse Myopia: Checking In With Asia and Latin America”:

 

As we’ve previously stated, the CNY needs to depreciate by as much as 10-15% vs. the USD, but any such devaluation will come at a measured pace. Beijing has no interest in AFC-style rapid devaluations and will continue to use their wide arsenal of tools – including coercion and capital controls – to achieve this objective, which effectively implies the bearish CNY overhang is here to stay. All told, we reiterate our bearish bias on Chinese capital markets and the yuan.”

 

From our 2/9 note titled, “Looking for Investment Ideas Across Asia, LatAm or EEMEA?”:

 

“[Chinese] officials continue to push back on a material devaluation of the CNY while concomitantly defending the currency with near-peak FX reserve deployment and incremental capital controls. While we remain explicitly bearish on China’s intermediate-to-long-term growth outlook, as well as the nation’s capital and currency markets, we continue to believe the path lower will remain piecemeal in nature, rather than sharp and/or sudden."

 

Indeed, it is appropriate to suggest that China has stabilized – certainly on a relative basis to über-bearish consensus expectations early in the year. This stabilization has been somewhere between a stealth driver and key catalyst of broad-based reflation across EM assets in the YTD:

 

  • iShares MSCI Emerging Markets ETF (EEM): +14.6%
  • WisdomTree Emerging Currency Fund (CEW): +7.9%
  • iShares JP Morgan Emerging Markets USD Bond ETF (EMB): +9.9%
  • Market Vectors Emerging Markets Local Currency Bond ETF (EMLC): +12.1%
  • WisdomTree Emerging Markets Corporate Bond Fund (EMCB): +7.2%
  • iShares MSCI Brazil Capped ETF (EWZ): +64.9%
  • Market Vectors Russia ETF (RSX): +25.8%
  • Global X FTSE Argentina 20 ETF (ARGT): +27.2%
  • iShares MSCI All Peru Capped ETF (EPU): +72.7%

 

In the context of knowing what we knew then about the most likely path for the Chinese economy and CNY (i.e. lower but not all at once), our general bearish bias on EM throughout the YTD has been a terrible call. In the context of our #LateCycle Slowdown view of the U.S. economy and labor market (and how the Fed is likely to react to that – i.e. dovishly), our call on EM this year has been downright horrific.

 

Our specific long/short recommendations haven’t been quite as dreadful, but they certainly have not generated alpha this year given our preference for defensive, commodity insensitive countries and regions. But [jokingly] who cares? As has become the case with the SPY, riding the beta wave seems increasingly more important to investors than generating alpha.

 

Alas, we should’ve seen broad-based EM reflation coming from a mile away. As rewarding as being the axe on the bear side of EM has been since we authored the call in early 2013 (see: Chart of the Day below) is as shameful as it has felt overstaying our welcome in the YTD.

 

Fortuitously, this industry doesn’t leave a lot of time and space for apologies and excuse-making. Moreover, most thoughtful investors tend to focus more on what’s coming down the pike rather than what’s already occurred.

 

So what’s next for EM from here? Specifically with respect to China and its outsized influence on sentiment for this asset class, fundamentals for EM are decidedly mixed. That said, however, they are unlikely to be as supportive throughout 2H16 as they were in 1H16 when the Chinese economy as we know it seemingly escaped from the abyss. Specifically:

 

 

Speaking of the Fed and U.S. monetary policy – the key driver of capital flows to and from EM assets – we don’t see the Fed being able to perpetuate lower-highs in the U.S. dollar from here. They’ve already done all they can to completely root out policy normalization expectations from the market, which implies the impact of dovish rhetoric upon the currency market will be muted on a go-forward basis; they need to outright ease policy (e.g. QE or a rate cut) if they want to drive the dollar lower from here.

 

That the aforementioned setup is occurring in the context of both the Eurozone and Japanese economies slowing concomitantly with the U.S. would seem to imply that incremental easing out of the ECB and/or BoJ is likely to have a greater impact on currency markets than yet another dovish pivot by the Fed.

 

All that being said, however, I don’t know that the DXY is poised to breakout to new cycle-highs in the context of our dour view on domestic employment growth and Yellen’s sensitivity to the labor market. For now at least, the balance of risks point to slight bullish bias in the USD, though still very much range-bound. And until something material changes, I don’t know that it’s appropriate to have a ton of risk on in EM in either direction.

 

As such, we’re keen to book the aforementioned gains and losses in order to retreat to the sidelines until further notice. Sometimes just wiping the slate clean and getting stuff off your screens is the most effective thing an investor can do to ensure future success.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.45-1.61% (bearish)

SPX 2155-2186 (bullish)
VIX 11.13-14.98 (bullish)
USD 94.75-97.25 (bullish)
Oil (WTI) 39.29-43.78 (bearish)

Gold 1 (bullish)

 

Keep your head on a swivel,

 

DD

 

Darius Dale

Director

 

Where’s China? - 8 9 16 Chart of the Day


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