Good morning, you can enjoy today's The Macro Show with Macro & Housing analyst Christian Drake and Director of Sales Daryl Jones HERE and access the associated slides (once they become available) HERE.
hedgeye's top 3 things
Below are the top three things from Hedgeye CEO Keith McCullough’s Macro Notebook this morning:
1) ASIA - South Korea, China, Hong Kong, Australia, India, Taiwan, Singapore and Japan all down in equity space with inflation expectations and nominal yields continuing to retreat as the Japan-South Korea spat continues to weigh while the broader fundamental data remains in full retreat mode. The tumble in South Korean exports remains ongoing and Japan Machine Tool Orders cratered -38% Y/Y in the latest June data as global trade activity continues to slow and the lead read on capex and global earnings continue their Quad 4 deceleration.
2) EUROPE - In other Japanification news, the cyclical and secular deceleration in Europe also remains ongoing. The U.K. is set to print negative growth in 2Q while the latest high frequency data across the continent has remained almost universally soft. The stagnation in the German Manufacturing Economy remains acute with Industrial Production falling -3.7% Y/Y while French Business Confidence made another lower low, Eurozone Investor Confidence made another lower low and Italian Retail Sales moved back to negative at -1.8% Y/Y. As we’ve highlighted, easing base effects are not the same as easy base effects, particularly if the Trend is towards deceleration, there is a discrete lack of obvious catalysts and the China/Asia recovery continues to falter.
3) CONFIDENCE - NFIB Sentiment retraced last month’s gain as global demand concerns proliferated and small businesses realized a net loss in employment in the aggregate in the latest month. We continue to Trend lower off the 3Q18 U.S. economic cycle peak as the factor cocktail facing domestic small business remains unchanged: Peak Comps + Slowing demand + Rising labor Costs ≠ Margin Expansion.
Entropy, Volatility and Deflation
This week in The Institutional Risk Analyst, we return to the activities of funds operating in the world of distressed real estate and corporate debt. We noted a few months back that some of the biggest players in the distressed debt industry were preparing for a comeuppance in the market for collateralized loan obligations or “CLOs.” New funds were be created to absorb and profit by busted CLOs and distressed financial institutions such as Deutsche Bank AG (DB).
But the anticipated selloff has not happened as yet, in large part due to the rally in the bond market. Indeed, the decline in bond yields since year-end 2018 has caused a surge in new CLO issuance, including the remaining backlog from the Q4 2018 fiasco. It's almost like the Fed wanted to refi CLOs just one more time. Just as the entropy of global finance seemed to be heading from temporary stability to chaos, the Fed goosed asset prices once again and bought the equity markets a little more time.