hedgeye asset allocationdocs.hedgeye.com.s3.amazonaws.com › he_tms_4.20.16.pdf · april 20, 2016...

HEDGEYE 2

DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice to individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management’s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management’s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at www.hedgeye.com.

LEGAL

http://www.hedgeye.com/





3MO

4/11/2014 THE MACRO SHOW

April 20, 2016

HEDGEYE ASSET ALLOCATION

3MO


April 20, 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

CASH U.S.EQUITIES

INT'LEQUITIES

COMMODITIES FOREIGNEXCHANGE

FIXED INCOME

65%

0% 0%

15% 15%

76%

HEDGEYE ASSET ALLOCATION

The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other asset classes is 33%.

1 2 3

#EARNINGS

EUR/USD

#TIGHTCHINA

#EARNINGS With the busiest week of Q1 Earnings for S&P 500 companies, we’ll have some concrete evidence of pending earnings deterioration. Thus far, 66 companies have reported from 7 sectors. 4 of 7 have comped down bottom line. S&P earnings have comped down -10.8% in aggregate, with materials and financials leading decliners. The trend of late cycle reporting strength in healthcare and consumer discretionary carries on, for now. Again we would ask the question, can the market continue to trade-up with the possibility of two more quarters of poor earnings? We’ll see.

EUR/USD The ECB holds its monetary meeting in Frankfurt tomorrow. We expect no great “waves” from President Mario Draghi as he already delivered the “Drugs” in the form of both interest rate cuts and the expansion of QE (by €20 billion to €80 billion/month) in last month’s meeting. We continue to suggest trading our immediate term TRADE risk range of $1.12 - $1.14. We have a neutral outlook on the currency cross over the intermediate term TREND.

#TIGHTCHINA The Shanghai Composite Index dropped -2.3% overnight despite the PBoC injecting 250B of liquidity into the banking system, which represents the largest such injection since February 26th. Weighing on sentiment was a Xinhua report that monetary policy will likely be more prudent in 2016 than it was last year, according to sources close to the PBoC, as well as PBoC Chief Economist Ma Jun commentary about future monetary policy needing to guard against financial risks. With Chinese corporate leverage high and getting higher (166% of GDP) and property prices running up 30% YoY in first tier cities, we expect the PBoC to rein in the liquidity provision meaningfully from here now that economic stabilization is in the rear view mirror.

MACRO

DARIUS DALE

HEDGEYE 10

UNITED STATES

DATA SOURCE: BLOOMBERG

HEDGEYE 11

UNITED STATES CONT’D. G: Our model has domestic

economic growth decelerating sharply here in Q2 with a probable

trough by the third quarter. This forecast is corroborated by the trending tightening across all

segments of domestic rates markets, as well as the sharp breakdown of

the USD on a trade-weighted basis in recent months – which itself has

perpetuated a massive short squeeze across nearly every facet of

the global reflation trade.

I: In line with our #Quad4 expectation for Q2, reported inflation

has at least temporarily inflected from generally hawkish trends. We

are projecting a resumption of trending acceleration in 2H16, but to

lower-highs on a long-term basis.

P: Domestic and global spillover effects stemming from structural USD strength have forced the Fed’s hand

to the dovish side, which is being ardently reflected throughout the

short end of U.S. rates markets in the YTD. There is, however, limited room

for further spread compression absent outright easing.


HEDGEYE 12

EUROZONE


HEDGEYE 13

EUROZONE CONT’D. G: Our model has Eurozone growth

decelerating on a trending basis throughout the balance of the year. This forecast is corroborated by the fact that Eurozone economic growth continues to slow on a trending basis

across every key category of high-frequency data.

I: Our model has Eurozone inflation decelerating through the balance of

1H16 before v-bottoming and trending higher through year-end.

This forecast is corroborated by the trending breakdown in 5Y5Y EUR inflation swaps as well as the trend

higher in the EUR on both a nominal and real basis.

P: We expect the ECB to

incrementally ease monetary policy by their June meeting in order to

combat the aforementioned cyclical headwinds, as well as the trend

lower in both Eurozone equities and Eurozone inflation expectations, as

well as the trend higher in the EUR/USD.


HEDGEYE 14

CHINA


HEDGEYE 15

CHINA CONT’D. G: Our secular bear case on China

remains firmly intact as evidenced by the lackluster Q1 GDP report and the fact that growth rates “C” + “I” + “NX” formula continue to decelerate on a

trending basis across key high-frequency metrics.

I: Our model has Chinese inflation inflecting here in Q2 and trending lower through the balance of Q3. Corroborating this forecast is the trending deceleration in core CPI, which implies the recent trend of

global commodity reflation – something we anticipate will end

soon – has been artificially propping up headline inflation readings in

China.

P: Consistent with our bullish bias on the USD from here, we anticipate the PBoC will begin to revalue the CNY lower on a trending basis over the intermediate term. This will likely force them to keep policy rates tight(er) in order to offset capital

outflow pressures and it appears that is already being reflected on the

short end of Chinese rates markets.


HEDGEYE 16

JAPAN


HEDGEYE 17

JAPAN CONT’D. G: Our model is all over the map with

respect to Japanese GDP growth, forecasting a #Quad4 setup in Q1, a

#Quad1 setup in Q2, a #Quad3 setup in Q3 and a #Quad2 setup in Q4.

While there are indeed nascent signs of inflection, Japanese economic growth continues to trend lower

across every key category of high-frequency data – as do rates on the

long end of the JGB yield curve.

I: Our model has Japanese inflation trending lower throughout the

balance of 1H16. This forecast is being corroborated by trending

deceleration across headline CPI, core CPI and headline PPI, as well as the trend lower in 5Y5Y JPY inflation

swaps and the trend higher in the JPY on both a nominal and real

basis.

P: Japanese policymakers in both the Cabinet and BoJ have ratcheted

up verbal intervention in the JPY, which is up ~10% YTD vs. the USD.

We believe verbal intervention to be unsustainable and anticipate the BoJ will expand upon QQE and/or NIRP

at its April 27-28 meeting.


HEDGEYE 18

UNITED KINGDOM


HEDGEYE 19

UNITED KINGDOM CONT’D. G: Aside of brief respite in Q3, our

model has U.K. GDP growth decelerating on a trending basis throughout the balance of 2016. Corroborating this forecast is the

trending deceleration seen across every key category of high-frequency growth data, as well as the trending narrowing of the Gilt 10Y-2Y spread.

I: Our model has U.K. inflation

accelerating throughout the balance of 2016. This forecast is corroborated

by trending acceleration across headline CPI, core CPI and headline

PPI, as well as the trending breakdown in the GBP on both a

nominal and real basis.

P: Naturally, we’d expect the BoE to be in a box given the

aforementioned cyclical outlook for persistent #Quad3 stagflation.

Complicating policy matters is the Brexit vote which is scheduled for late-June and is effectively a coin

toss. The BoE is appropriately storing its ammo in the event that process weighs heavily upon consumer and

business confidence in the U.K.


3MO


April 20, 2016

HEDGEYE MACRO PROCESS: RATE OF CHANGE

3MO


April 20, 2016

S&P REVENUE & EARNINGS COMP

3MO


April 20, 2016

WHAT CAN MORE JAWBONING ACCOMPLISH?

hedgeye asset allocationdocs.hedgeye.com.s3.amazonaws.com › he_tms_4.20.16.pdf · april 20, 2016...

Documents