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Daily Market Data Dump: Thursday

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: Thursday - equity markets 8 18

 

Daily Market Data Dump: Thursday - sector performance 8 18

 

Daily Market Data Dump: Thursday - volume 8 18

 

Daily Market Data Dump: Thursday - rates and spreads 8 18

 

Daily Market Data Dump: Thursday - currencies 8 18

 

Daily Market Data Dump: Thursday - commodities 8 18


The Nikkei was hammered overnight...

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.

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%
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

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. 


August 18, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.60 1.46 1.56
SPX
S&P 500
2,164 2,192 2,182
RUT
Russell 2000
1,210 1,241 1,227
COMPQ
NASDAQ Composite
5,130 5,255 5,228
NIKK
Nikkei 225 Index
16,033 17,158 16,745
DAX
German DAX Composite
10,204 10,898 10,537
VIX
Volatility Index
11.03 14.65 12.19
USD
U.S. Dollar Index
94.41 96.50 94.69
EURUSD
Euro
1.10 1.13 1.12
USDJPY
Japanese Yen
99.33 102.89 100.28
WTIC
Light Crude Oil Spot Price
40.26 47.53 46.79
NATGAS
Natural Gas Spot Price
2.46 2.88 2.62
GOLD
Gold Spot Price
1,330 1,370 1,348
COPPER
Copper Spot Price
2.10 2.19 2.15
AAPL
Apple Inc.
104.49 110.02 109.22
AMZN
Amazon.com Inc.
754 779 764
NFLX
Netflix Inc.
91.80 97.88 96.37
JPM
J.P. Morgan Chase & Co.
62.70 66.59 65.89
INTC
Intel Corp.
34.00 35.81 35.02
LOW
Lowe's Companies
75.78 78.95 76.88
XOP
SPDR S&P Oil & Gas Explore
34.17 37.07 36.85
RMZ
MSCI US REIT
1,224 1,261 1,232



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: A Deep Dive Into 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.

 

"For brevity’s sake, however, we’ll focus on one quick and dirty way to accomplish this, which is by regressing dollar-denominated equity market returns off of their respective YTD lows vs. the delta in composite PMI readings off of their respective YTD lows.

 

Does the market improvement match the economic improvement? If not, what is the probability the latter catches up to the former?

 

Regressing the aforementioned factors across the 16 emerging market economies we could find with available data yielded a positive correlation of +0.87. Even excluding outliers Brazil and Russia yielded a positively-sloping regression line with a correlation of +0.35 (see: Chart of the Day below for visualization)."

 

CHART OF THE DAY: A Deep Dive Into Emerging Markets - 8 18 16 Chart of the Day


Inside-Out

“When in doubt, inside-out.”

-Keith Clark

 

The quote of the day today comes from Keith Clark, current Offensive Coordinator and Head Offensive Line Coach at Dartmouth. Prior to his already-successful stint with the Big Green, Coach Clark shared those same titles for 12 years at Yale, where I played on his offensive line (left tackle to be exact).

 

It’s an understatement to say that Coach Clark is one of the best offensive line coaches in the country; he’s mentored dozens of student-athletes to All-Conference and All-American accolades (including myself) and, in addition coaching on multiple championship teams (including my own), his teams have typically enjoyed among the nation’s best success rates at both running the football and protecting the quarterback.

 

Going back to the aforementioned quote, in layman’s terms it effectively means when you’re confused by a specific blitz look in pass protection and don’t know who to block, just block the defender closest to you that possesses the shortest path to the quarterback. Simple enough, right? Right.

 

Inside-Out - yale football

 

Back to the Global Macro Grind

 

In many ways, being a global macro research analyst is a lot like being an offensive lineman. There’s way too much to know, far too little time to learn it and it always feels like the entire world is hell-bent on confusing you. The sum of it all can be quite a bit frustrating if you let it get to you.

 

As we outlined in our 8/9 Early Look titled, “Where’s China?”, my frustration with being on the wrong side of emerging market beta in the YTD eventually became too much to bear.

 

Enter fundamentals. The entire point of constantly practicing basic techniques and reviewing schematic themes is twofold:

 

  1. It slows the mental aspect of the game down, allowing one to make better decisions under pressure; and
  2. It simultaneously speeds up the physical aspect of the game, allowing one to simply react to the opponent’s movement, rather than thinking about what one’s own movement should be in response.

 

Within our global macro framework, we’ve identified three core fundamental factors that help up slow this game down by explaining away the preponderance of factor exposure performance:

 

  1. Growth
  2. Inflation
  3. Policy

 

Moreover, we’ve found that triangulating these factors in differential fashion leads to investable conclusions, across asset classes, at both the country and regional levels.

 

How I feel about the outlook for EM beta right now is a lot like how I would feel when confronted by an exotic blitz scheme – unsure of what exactly to do.

 

On the bullish side of the ledger, the U.S. successfully avoided dragging the global economy into recession (for now) and global financial stress is now making lower-highs across a variety of key volatility, flow and funding metrics – which is very positive for capital flows into EM assets (insomuch as it was negative in the ~18 months prior to JAN ’16).

 

On the bearish side of the ledger, the two factors that helped perpetuated the aforementioned catalysts – i.e. USD depreciation and a complete dissipation of “policy normalization” expectations in the U.S. – have seemingly run their course.

 

Lacking conviction in the direction of EM beta from here, I find it best to rely upon my “inside-out” technique – or in this case, GIP fundamentals. Specifically, I think country-picking is the appropriate play call until we get additional clarity on the top-down factors affecting EM beta from here.

 

As we outlined in the aforementioned note, EM assets have enjoyed fantastic run-ups throughout much of the YTD, so naturally, a good place to begin hunting is screening for countries whose markets have meaningfully underperformed their GIP fundamentals (potential longs) and those who have commensurately outperformed (potential shorts).

 

There’s a thousand ways to skin this cat and believe us – we did (we’ll present those additional findings in the days and weeks to come). For brevity’s sake, however, we’ll focus on one quick and dirty way to accomplish this, which is by regressing dollar-denominated equity market returns off of their respective YTD lows vs. the delta in composite PMI readings off of their respective YTD lows.

 

Does the market improvement match the economic improvement? If not, what is the probability the latter catches up to the former?

 

Regressing the aforementioned factors across the 16 emerging market economies we could find with available data yielded a positive correlation of +0.87. Even excluding outliers Brazil and Russia yielded a positively-sloping regression line with a correlation of +0.35 (see: Chart of the Day below for visualization).

 

The key takeaway is that investors have generally paid up for economic turnarounds in EM throughout the YTD. Assuming that holds true, which economies have outperformed and underperformed their growth trajectories?

 

  • Underperformers: China, Malaysia, South Korea, Taiwan and Turkey
  • Outperformers: Chile, Indonesia, Mexico, Russia and Thailand

 

Below we quickly profile the GIP fundamentals of each of the aforementioned economies on a trending rate-of-change basis in addition to highlighting what our Bayesian overlay implies for the upcoming 2-3 quarters in Hedgeye GIP Model “Quadrant” speak.

 

The simple risk management takeaway is to establish small long/overweight positions in the underperformers with good fundamentals and establish small short/underweight positions in the outperformers with bad fundamentals. We can build upon or reduce these exposures with the advent of incremental analysis.

 

UNDERPERFORMERS

China: DO NOTHING – the policy outlook appears to convoluted to trade

 

  • Growth: generally trending lower across the preponderance of key high-frequency data
  • Inflation: generally trending higher across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: LOL… Beijing will print whatever GDP numbers it darn well pleases; the key to trading Chinese equities is front-running the onset or withdrawal of stimulus – which itself appears to be peaking

 

Malaysia: BUY/OVERWEIGHT – as growth appears to have bottomed mid-year

 

  • Growth: generally trending mixed across the preponderance of key high-frequency data
  • Inflation: generally trending lower across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: #Quad2 throughout 2H16 and 1Q17

 

South Korea: DO NOTHING – but look to buy on a pullback within the next 4-6 weeks

 

  • Growth: generally trending higher across the preponderance of key high-frequency data
  • Inflation: generally trending lower  across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: #Quad4 in 3Q16, #Quad2 in 4Q16 and 1Q17

 

Taiwan: BUY/OVERWEIGHT – as the recovery in growth should persist through year-end

 

  • Growth: generally trending higher across the preponderance of key high-frequency data
  • Inflation: generally trending higher across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: #Quad1/2 throughout 2H16, #Quad4 in 1Q17

 

Turkey: DO NOTHING – the GIP outlook is too mixed to trade

 

  • Growth: generally trending lower across the preponderance of key high-frequency data
  • Inflation: generally trending lower across the preponderance of key high-frequency data
  • Policy: neutral
  • GIP Model Quadrant Outlook: #Quad2 in 3Q16, #Quad4 in 4Q16 and #Quad2 in 1Q17

 

OUTPERFORMERS

Chile: DO NOTHING – the good news is priced in

 

  • Growth: generally trending sideways across the preponderance of key high-frequency data
  • Inflation: generally trending lower across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: #Quad1 throughout 2H16, #Quad3 in 1Q17

 

Indonesia: DO NOTHING – but look to short on strength within the next 4-6 weeks

 

  • Growth: generally trending higher across the preponderance of key high-frequency data
  • Inflation: generally trending lower across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: #Quad1 in 3Q16, #Quad4 in 4Q16 and #Quad3 in 1Q17

 

Mexico: SHORT/UNDERWEIGHT – as tighter policy perpetuates a reversal in growth

 

  • Growth: generally trending higher across the preponderance of key high-frequency data
  • Inflation: generally trending higher across the preponderance of key high-frequency data
  • Policy: getting tighter at the margins
  • GIP Model Quadrant Outlook: #Quad4 in 3Q16, #Quad3 in 4Q16 and 1Q17

 

Russia: DO NOTHING – the good news is priced in

 

  • Growth: generally trending higher across the preponderance of key high-frequency data
  • Inflation: generally trending lower across the preponderance of key high-frequency data
  • Policy: getting easier at the margins
  • GIP Model Quadrant Outlook: #Quad4 in 3Q16, but back to #Quad1 in 4Q16 and 1Q17

 

Thailand: SHORT/UNDERWEIGHT – as tighter policy perpetuates a reversal in growth

 

  • Growth: generally trending higher across the preponderance of key high-frequency data
  • Inflation: generally trending higher across the preponderance of key high-frequency data
  • Policy: getting tighter at the margins
  • GIP Model Quadrant Outlook: #Quad3 throughout 2H16 and 1Q17

 

*NOTE: Clicking on each hyperlinked country name will download its respective economic and financial market summary table.

 

The risk management summary of the preceding exercise is as follows:

 

  • LONGS: #1. Malaysia (EWM) => #2. Taiwan (EWT) => #3. South Korea (EWY)
  • SHORTS: #1. Mexico (EWW) => #2. Thailand (THD) => #3. Indonesia (EIDO)

 

All told, there’s more to come from us in the coming days and weeks on this topic of EM country-picking, as well as where to allocate fixed income assets, at the margins (i.e. hard currency, local currency or corporate paper). Our inclination is to prefer the latter two asset classes over the former, but the sustainability of capital inflows into EM from here will be the deciding factor on whether or not they play-catch up or continue to lag.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.46-1.60% (bearish)

SPX 2164-2192 (bullish)

VIX 11.03-14.65 (bullish)
EUR/USD 1.10--1.13 (bearish)
YEN 99.33-102.89 (bullish)
Oil (WTI) 40.26-47.53 (bearish)

Gold 1 (bullish)

 

Keep your head on a swivel,

 

DD

 

Darius Dale

Director

 

Inside-Out - 8 18 16 Chart of the Day


The Macro Show with Darius Dale Replay | August 18, 2016

CLICK HERE to access the associated slides.

 

 

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


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