CLIENT TALKING POINTS
Spain
...and so the political pain continues in Spain. The latest update is acting PM Rajoy has once again convoluted the road to forming a government, this time going against his word to evaluate a series of reform demands from the centrist Ciudadanos party (which if agreed to by Rajoy would increase the likelihood of Ciudadanos joining Rajoy’s party to form a coalition government). Will this political indecision continue, leaving investors in the dark, you bet! #EuropeImploding.
Japan
The Nikkei was hammered overnight, closing down -1.6% as the USD/JPY cross moved back below 100 on the heels of brutal export numbers for the month of JUL. Specifically, the -14% YoY decline was the largest fall since OCT 2009 and the decline showed broad-based weakness – calling attention to slowing global growth, as well as Japan’s inability to manufacture domestic demand. We’ve been the bears on Japanese equities all year and feel it’s appropriate to reiterate that call this morning amid this incremental breakdown of the #BeliefSystem.
ECB
ECB Minutes from July 21 show continued use of phrase “it [ECB] would act by using all instruments available within its mandate”. We continue to fade the ECB policy stance that QE will fix the region’s underlying growth and inflation ails. Our short bias on the EUR/USD remains intact.
TOP LONG IDEAS
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
Asset Allocation
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 8/17/16 | 54% | 3% | 3% | 10% | 18% | 12% |
| 8/18/16 | 54% | 3% | 3% | 10% | 18% | 12% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 8/17/16 | 54% | 9% | 9% | 30% | 55% | 36% |
| 8/18/16 | 54% | 9% | 9% | 30% | 55% | 36% |
THREE FOR THE ROAD
TWEET OF THE DAY
Fund Flow Survey | Hitting The Escape Button https://app.hedgeye.com/insights/53147-unlocked-fund-flow-survey-the-hits-keep-coming … @KeithMcCullough #Bonds #Stocks
@Hedgeye
QUOTE OF THE DAY
“Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible”
-Francis of Assisi
STAT OF THE DAY
The first and only pair of teammates to be named co-MVPs in the NBA is John Stockton and Karl Malone.
