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Got #GrowthSlowing? These Poor Central Planners Just Don't Get It

Takeaway: The 10s/2s yield spread was down -6bps on the week & down -41bps year-to-date. Got #GrowthSlowing?

Another “scare” of “rising 10yr yields” met with another ramp in long-term bonds last week; we’re up to $13.4T in negative yielding bonds globally now (vs. 13.1T last wk) as global growth continues to look like Yield Spreads (slowing); UST 10yr down another beep to 1.50% this morning and the USA Yield Spread testing YTD lows at 80bps (short Banks #reiterated).

 

Got #GrowthSlowing? These Poor Central Planners Just Don't Get It - 10yr2yr 8 15

 

Editor's Note: The snippet above is from a note written by the Hedgeye Macro team and sent to subscribers this morning. Click here to learn more.


August 15, 2016

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.58 1.46 1.51
SPX
S&P 500
2,156 2,194 2,184
RUT
Russell 2000
1,207 1,243 1,229
COMPQ
NASDAQ Composite
5,110 5,265 5,232
NIKK
Nikkei 225 Index
16,401 17,066 16,919
DAX
German DAX Composite
10,260 10,903 10,713
VIX
Volatility Index
11.01 14.77 11.55
USD
U.S. Dollar Index
94.99 96.64 95.68
EURUSD
Euro
1.09 1.12 1.11
USDJPY
Japanese Yen
100.06 103.21 101.23
WTIC
Light Crude Oil Spot Price
39.28 44.98 44.49
NATGAS
Natural Gas Spot Price
2.45 2.90 2.59
GOLD
Gold Spot Price
1,324 1,375 1,343
COPPER
Copper Spot Price
2.12 2.20 2.14
AAPL
Apple Inc.
103.52 110.30 108.18
AMZN
Amazon.com Inc.
755 781 772
NFLX
Netflix Inc.
91.10 97.66 96.59
JPM
J.P. Morgan Chase & Co.
62.82 66.81 65.32
INTC
Intel Corp.
34.11 35.99 34.57
TWTR
Twitter Inc.
17.87 20.74 19.54
XOP
SPDR S&P Oil & Gas Explore
33.06 36.81 36.08
RMZ
MSCI US REIT
1,235 1,275 1,244


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: Reflation Under Siege

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.

 

"... With the “reflation” trade under siege since peaking in early June, a -0.2% year-over-year Producer Price report for JUL (vs. +0.3% y/y in JUN) gave the market what it loves most when it can’t beat 1% GDP growth – Down Dollar, Down Rates:

 

  1. US Dollar Index ended the week down -0.5%
  2. US 10yr Yield fell 8 basis points on the week to 1.51%
  3. CRB Index and Oil reflated +0.5% and +6.4% on the week, respectively" 

 

CHART OF THE DAY: Reflation Under Siege - 08.15.16 chart


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.

Genius Bankers

“Growing up, I heard the word genius a lot.”

-Angela Duckworth

 

For those of you who are new to following me, you’ll realize that I am no genius. In the mess of strategists and economists you can read rants from in the morning, I may very well be the furthest thing from it.

 

The aforementioned quote comes from a book I cracked open this weekend called Grit The Power of Passion and Perseverance. So far the book is ok. Unlike Duckworth, I didn’t grow up listening to my Dad talk about geniuses in the WSJ. I was taught to grind.

 

If you spend enough time grinding it out in macro markets, you’ll be taught many lessons in humility. Don’t let those deter your professional progress though. Every mistake leads to a learning opportunity. The faster you learn, the faster you grow.

 

Back to the Global Macro Grind

 

With $13.4 TRILLION in negative yielding bonds out there globally (up from $13.1T last week), most macro market participants are learning that without A) #GrowthSlowing and B) falling bond yields, that returns in both stocks and bonds won’t grow much faster.

 

Genius Bankers - global growth.sick bull cartoon 08.24.2015

 

I guess that’s partly why, on the heels of both US Retail Sales and Producer Prices (PPI) slowing on Friday, both US stocks and bonds remained close to their all-time closing highs.

 

With the “reflation” trade under siege since peaking in early June, a -0.2% year-over-year Producer Price report for JUL (vs. +0.3% y/y in JUN) gave the market what it loves most when it can’t beat 1% GDP growth – Down Dollar, Down Rates:

 

  1. US Dollar Index ended the week down -0.5%
  2. US 10yr Yield fell 8 basis points on the week to 1.51%
  3. CRB Index and Oil reflated +0.5% and +6.4% on the week, respectively

 

In the UK they get this evisceration of the purchasing power of The People program (via Down Pound) much more readily. With the British Pound down another -1.2% last week (vs. USD), the stocks in London (FTSE) ramped another +1.8% to +10.8% YTD.

 

Not to be confused with something like the Nasdaq or SP500, which were +0.1% and +0.2% on decelerating volume last week to +4.5% and +6.9% YTD, respectively, the UK stock market looks more like their athletes (37 medals in Rio!) than their poor people do.

 

Yep. That’s how the math works. If you get paid in a currency… and I burn it for the sake of “reflating asset prices” in that currency… you get poorer, in that currency. So you better own some bonds, buildings, and stocks… so that you aren’t as poor as real poor people.

 

Back to the USA, here’s how the Equity Sector Styles paid out on a Down Dollar, Down Rates week:

 

  1. Energy Stocks (XLE) led gainers, closing up +1.7% on the week to +13.9% YTD
  2. Financials (XLF) led losers (again), closing down -0.7% on the week to +0.1% YTD

 

Poor bankers.

 

Due to their own architectural genius I’m sure, banks have empowered and employed an un-elected set of central-market-planners that have officially become the causal factor in the “under performance” of their equities (yes, many bankers still get paid “in stock”).

 

Great week for stocks (and the bonds that are outperforming them)! But another brutal week for one of the leading indicators on how banks make money (i.e. the Yield Spread). Here’s how that spread looked subtracting the 2yr yield from the 10yr yield last week:

 

  1. US Yield Spread down another -6 basis points on the week to 80bps = down -41 basis points (bps) YTD
  2. UK Yield Spread down another -14 bps on the week to 38bps = down -93bps YTD
  3. JGB Yield Spread down another beep on the week to 9bps = down -19bps YTD

 

True, Japanese Bankers aren’t as genius as American ones these days. That’s what happens when your central bank has almost inverted your yield curve. Once that happens, the only guys who can try to be rock-stars are the bankers at the central bank itself.

 

Oh, you as an American, British, or European banker don’t like that? Maybe you should think about a career pivot into central-market-planning. As of last week it looks like the Bank of Japan (BOJ) is a Top 5 holder in 81 of the 225 stocks in the Nikkei!

 

That’s right – after another GDP #GrowthSlowing report (Japan’s GDP for Q2 was 0.2%), the Japanese are trying to teach all bankers around the world that, Ex-Banks, stocks can never go down (ever again) provided that central bankers buy them with printed money.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.46-1.58%

SPX 2156-2194

NASDAQ 5110-5265  

Nikkei 166

VIX 11.01-14.77
USD 94.99-96.64
YEN 100.06-103.21
Oil (WTI) 39.28-44.98

Gold 1

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Genius Bankers - 08.15.16 chart


BOJ now a Top 5 holder in 81 of 225 names in the Nikkei – all hail central-market-planning!

Client Talking Points

UK

The central market plan for the UK remains A) burn the currency to B) protect asset prices in said currency – and Carney is seeing “success” with that (Pound -1.2% last week and down another -0.1% vs. USD this am = FTSE +0.3% this am and +4% in the last month); meanwhile the UK Yield Spread continues to get hammered (10s minus 2s down to 38bps wide).

Oil

Nice big bear market bounce of +6.4% last week sees modest follow through this am of +0.3% to $44.61 with Russian headlines dominating a quiet Monday morning – risk range for WTI is now quite wide (because oil volatility is still quite high at 37 OVX) = $39.28-44.98; good spot to sell some Oil against Long Gold (or Platinum) which pulled back small last week.

UST 10YR

Another “scare” of “rising 10yr yields” met with another ramp in long-term bonds last week; we’re up to $13.4T in negative yielding bonds globally now (vs. 13.1T last wk) as global growth continues to look like Yield Spreads (slowing); UST 10yr down another beep to 1.50% this morning and the USA Yield Spread testing YTD lows at 80bps (short Banks #reiterated).

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/14/16 61% 3% 3% 10% 14% 9%
8/15/16 56% 4% 4% 12% 15% 9%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/14/16 61% 9% 9% 30% 42% 27%
8/15/16 56% 12% 12% 36% 45% 27%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

See update on TLT below.

TLT

Eurozone GDP, reported Friday, signaled more of the same, stagnation. With that being said there were small but marginal Euro tailwinds against a U.S. retail sales report and PPI release that was likely dovish on the margin (USD -~20bps on Friday and -~60bps on the week). 

 

In line with our #EuropeSlowing theme, Q2 preliminary GDP slowed across the Eurozone to +0.3% vs. +0.6% in the prior quarter and +1.6% Y/Y for Q2 which was flat on a rate of change basis from Q1.

Looking at specific country results:

 

  • German (0.4% vs 0.7% sequentially) GDP accelerated to +1.8% Y/Y from +1.6% which was probably a minor Euro FX tailwind
  • Italian GDP came in at +0.7% Y/Y which was a deceleration from +1.0% in Q1
  • Greece GDP accelerated to contraction again, printing a measly -0.1% Y/Y from -1.3% in Q1
  • The Southern Eurozone states continue to implode 
UUP

Recall that a strong retail sales report for June, driven by a positive trend in goods consumption, was a large contributor to our GDP revision for Q2. The headline number, for June, was up +0.6% sequentially with the sequential acceleration in the control group accelerating +7.2% (annualized).

 

Friday’s retail sales report was a different story, and probably a dovish data point for the USD on the margin :

 

  • The control group printed flat sequentially, +0.0%
  • Retail sales ex. auto and gas printed -0.3% sequentially

 

Next to retail sales, July headline producer prices decelerated -0.4% vs. +0.5% in June sequentially and -0.2% Y/Y vs. +0.3% Y/Y in June. PPI ex. food and energy came in at 0.0% sequentially vs. +0.4% in June and +0.7% Y/Y from +1.3% in June. #Deflation  

Three for the Road

TWEET OF THE DAY

@KeithMcCullough - Negative yielding bonds hits $13.4T vs. $13.1T last week - good thing we have #GrowthSlowing pic.twitter.com/pT1YOh4GvD

@Hedgeye

QUOTE OF THE DAY

“The world breaks everyone, and afterward, some are strong at the broken places.”  

–Ernest Hemingway

STAT OF THE DAY

USA has 69 medals this Olympics so far, 26 of them are gold.


The Macro Show with Financials & Housing Sector Head Josh Steiner Replay | August 15, 2016

CLICK HERE to access the associated slides.

 

 

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


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