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The S&P 500 finished slightly higher on Monday, after spending most of the day in the red.  On the MACRO front the “Sovereign debt Dichotomy theme/concerns” continue to provide downward pressure in Europe.  There were additional concerns over the strength and sustainability of economic activity in China, though these concerns did little to stop China from being up 1.4% last night. 

On the MACRO front, the May Empire Manufacturing came in below expectations; 19.1 vs consensus 30.0 and prior 31.9. New orders index was 14.30; down from prior 29.49. Shipments index was 11.29; down from prior 32.10. Inventories index was 1.3; down from prior 11.39.

March total net TIC flows were $10.5B vs revised prior $9.7B; net long-term inflow (purchases of equities, notes and bonds) totaled was significantly higher $140.5B than consensus $50.0B and $47.1B  billion in February.  Treasury purchases rose by the most since June as China added to its holdings for the first time since September.

On the housing front, May NAHB Housing Market Index was better than expected; 22 vs consensus 20 and prior 19. While still low by historical standards, this was the highest reading since August 2007.  The gauge of buyer traffic increased to 16 from 13 last month and the measure of sales expectations for the next six months climbed to 28 from 25.

Yesterday, Consumer Staples was the best performing sector and is now added to the list of sectors that are positive on TREND.  The others include Consumer Discretionary, Industrials and Utilities. 

Commodities fell to a seven-month low, led by the industrial metals and energy.  The CRB declined 2.1% to 253.20, the lowest level since October 5th. Copper plunged the most in 15 months and crude oil fell to the lowest price since December.  Oil declined sharply yesterday but has pared some of its losses.  Currently it is trading up 2.7% at $71.95. 

Not surprisingly, the REFLATION trade was hit hard yesterday.  Energy (XLE) was the worst performing sector, down 1% (with crude oil down 2.1% to 70.08 after trading below $70 earlier in the day).  Industrials (XLI) and Materials (XLB) round out the bottom three performing sectors.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (71.80) and Sell Trade (76.17). 

Within the Materials, the S&P Metals & Mining Select Industry Index was down 3.4%.  Chinese export concerns and the EURO are leading the list of concerns for the XLB.  Steel companies were among the worst performers, as were the precious metals.  Even gold stocks were notable as gold companies moved to the downside. 

Yesterday, at 12.10 PM we shorted the UUP.  We've been waiting for immediate term TRADE capitulation in the Euro. We may have seen that yesterday and the USD is approaching our intermediate term TREND upside target at the same time.  Today, the USD is up versus the GBP, JPY, and the AUD, down versus the EURO, CHF, CAD, and HKD.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.99) and Sell Trade (86.97). 

The Euro is holding Hedgeye's $1.21-1.22 level of intermediate term support, popping back up to 1.24 with immediate term resist at 1.26.  The Euro is up versus the USD, JPY, GBP, AUD, and HKD.  The Swiss Franc and Canadian Dollar are trading up versus the EURO, with the CAD showing less sensitivity to oil prices than the Australian currency.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.22) and Sell Trade (1.26). 

Looking at counterparty risk, three month LIBOR has increased again from yesterday to 0.46.  The inverse correlation between the TED spread and the EURO tightened further during yesterday’s trading; it is now -0.95.  The TED spread widened during trading yesterday but has come in slightly this morning (the Euro is up!), currently at 0.297.  Gold has shown some weakness over the past couple of days; at the time of writing it is trading down 1.1% at $1,214 per ounce.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,177) and Sell Trade (1,255).

The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.99) and Sell Trade (3.15). 

At the time of writing, equity futures are trading above fair value, feeding the markets rallied into the close Monday.   Yesterday’s late session rally has translated into higher European and Asian markets, where RISK is slowly returning.  As we look at today’s set up, the range for the S&P 500 is 35 points or 2.5% (1,109) downside and 0.6% (1,144) upside. 

On the MACRO calendar we have:

  • April PPI
  • April Housing Starts, Permits 
  • API Crude Inventories 
  • ABC Consumer Confidence

Howard Penney

Managing Director

US STRATEGY - THE RETURN OF RISK? - S P

 

US STRATEGY - THE RETURN OF RISK? - DOLLAR

 

US STRATEGY - THE RETURN OF RISK? - VIX

 

US STRATEGY - THE RETURN OF RISK? - OIL

 

US STRATEGY - THE RETURN OF RISK? - GOLD

 

US STRATEGY - THE RETURN OF RISK? - COPPER