Rolling And Shaking, continued

Positions: Short France (EWQ)

 

1.       Germany

 

The latest German unemployment rate ticked down to 7.7% in May from 7.8% in the previous month and continues to trend at a healthy level (especially when compared to Spain at 20.05% or Ireland at 13.4% and the Eurozone average of 10.1%). However, despite a bullish employment report, we’ve noted a recent slowing across fundamentals, which also prompted our sale of the German equity market via EWG in our virtual portfolio last week (see our recent post “The Contagion Drag” on 5/26).

 

Rolling And Shaking, continued - m1

 

Further, the resignation of German President Horst Koehler late Friday adds political pressure and uncertainty to Chancellor Merkel’s government that has struggled to exude confidence: not only was an aid package to Greece et al not supported, it cost her party (the Christian Democratic Union or CDU) an election in the important economic state of North Rhine-Westphalia (NRW) and uprooted her party’s majority in the upper house of parliament (Bundesrat), which will drive a wedge in the party’s future policy making.

 

Koehler’s decision to step down resulted from a comment he made last week that “a country like Germany, which is reliant on foreign trade, must know that military intervention could be necessary to uphold economic interests.” His gaffe on a hot-button topic like Germany’s involvement in Afghanistan (Germany has a sizable military presence in Afghanistan but little popular support) prompted the decision. Interestingly, Merkel encouraged the broadly liked Koehler to stay on.  While the position of President is very much ceremonial in Germany, the move creates further consternation; a new President is set to be appointed on June 30th. 

 

Lastly, Koehler’s resignation follows CDU state Premier of Hesse Roland Koch’s resignation last week to work in the private sector.

 

 

2.       France

 

France’s PPI popped up to 4% in April year-over-year versus 2.0% in March Y/Y. As we’ve called for a ramp in inflation (globally), it’s important to note that we now forecast inflation to dampen on sequentially tougher annual compares as we head into late Q2 and Q3. Nevertheless, our bearish case on France remains and we’re short the country in our virtual portfolio via EWQ. Like Spain and Italy, France’s deficit and debt imbalances will gain the spotlight like Greece and cause further downward pressure on its capital markets. We also expect its AAA sovereign debt rating to be cut.

 

Rolling And Shaking, continued - m2

 

 

3.       Eurozone PMI

 

Manufacturing PMI contracted across most of Europe with the Eurozone average declining to 55.8 in May from 55.9 in the previous month. The chart below shows waning momentum, reflective of contagion fears, which we’d expect to continue over the coming months.

 

Rolling And Shaking, continued - m3

 

Matthew Hedrick
Analyst

 


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more