The Enhanced Investor Weekly Macro
March 26, 2017
ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap Hi Guys, Well, let’s get into it… The Dow, S&P 500 and the Nasdaq ended the week in negative, as the House of Representatives’ withdrew a health care bill to repeal and replace parts of Obamacare, after chances of passing the bill appeared slim amid a lack of votes. Healthcare and biotech should rally because of this. Additionally, oil prices slid 1.7% for the week, after crude oil inventories swelled to record highs. The EIA said crude inventories rose by 5 million barrels to 533.1 million for the week ended March 15. OPEC is currently working on a deal that would extend current production cuts for another six months. Gold notched its second weekly gain. Despite a dip in gold prices on Friday, it notched its second weekly gained, as it benefited from a broad based selloff in the dollar. The dollar dipped to a four-month low against the yen. USD/JPY slumped to a four-month low, as uncertainty concerning the strength of the U.S. stock market increased demand for the yen, which is considered a safe-haven currency.
Market Update Global financial markets will shift their focus to Brexit-related events in the week ahead, with British Prime Minister Theresa May expected to notify the European Union of Watch the XBI, IBB, Britain's intention to leave, starting two years of unprecedented negotiations. Meanwhile, in the U.S., more than a dozen Federal Reserve policymakers, including Chair Janet Yellen, are due to make public appearances that may offer insight into the likelihood of higher interest rates in the months ahead.
and CURE this week - Healthcare stocks should move.
Traders will also keep an eye out on a final reading of U.S. fourth-quarter economic growth for confirmation that the narrative of stronger growth is intact.
The Enhanced Investor Weekly Macro
1
The Enhanced Investor Weekly Macro
March 26, 2017
Elsewhere, investors will await monthly inflation data out of the euro zone to assess the timing of when the European Central Bank will start unwinding its massive asset purchase program. In China, market players will be looking out for data on the country's manufacturing sector, amid ongoing concerns over the health of the world's second biggest economy. 1.
U.K. Set to Trigger Article 50
British Prime Minister Theresa May is set to trigger Article 50 of the Lisbon Treaty, which officially kicks off the process of exiting the European Union. May will send a letter to European Council President Donald Tusk formally announcing Britain's withdrawal from the bloc on Wednesday. Tusk will then send draft negotiating guidelines to the 27 other member states within 48 hours. The correspondence will start the clock ticking on a two-year countdown to Brexit and allow negotiations to start between London and Brussels in the coming weeks. Besides Brexit-related developments, traders will be looking ahead to a final reading on U.K. fourthquarter economic growth on Friday for further indications on the continued effect that the Brexit decision is having on the economy. The report is forecast to confirm the economy grew 0.7% in the final three months of last year. On a year-over-year basis, the economy is expected to grow by 2.2% underlining the view that the British economy remains on a solid footing.
As I’ve said before, any reduction of expectations perceived by the markets regarding stimulus results in a market selloff.
The Bank of England voted to keep interest rates unchanged earlier this month, but the decision was split with one of the nine members voting to raise rates for the first time since July given the recent spike in inflation. 2. Fed Speakers Take Center Stage
Stocks became leveraged 42% higher any other time in recorded history on Friday. This means they’re on margin - not cash. If oil breaks $48 - be careful longing anything, but gold (GLD).
There’s only one reason gold and bonds go up together - fear. On Monday, Chicago Fed President Charles
Evans and Dallas Fed President Rob Kaplan are scheduled to deliver comments. Tuesday sees Fed Chair Janet Yellen speak on workforce development challenges in low-income communities at 9:50AM ET (14:50GMT).
The Enhanced Investor Weekly Macro
2
The Enhanced Investor Weekly Macro
March 26, 2017
Kansas City Fed President Esther George, Dallas Fed President Kaplan and Fed Governor Jerome Powell are also on tap Tuesday. On Wednesday, Chicago Fed's Evans, Boston Fed President Eric Rosengren and San Francisco Fed President John Williams make public appearances. Thursday sees Cleveland Fed President Loretta Mester, Dallas Fed's Kaplan, San Francisco Fed's Williams and New York Fed President William Dudley deliver comments. Finally, on Friday, Minneapolis Fed President Neel Kashkari and St. Louis Fed President James Bullard are scheduled to make public appearances. The Fed raised interest rates earlier this month, but stuck to its outlook for two more hikes this year, instead of three expected by the market. The Fed fund futures priced in around a 45% chance of a rate hike in June, and ddds of a September increase at about 70%. 3. U.S. 4th Quarter GDP - Third Estimate The U.S. is to release final figures on fourth-quarter economic growth at 8:30AM ET (13:30GMT) Thursday. The data is expected to show that the economy expanded at a healthy 2% annual rate in the final three months of 2016, upwardly revised from a preliminary estimate of 1.9%. Besides the GDP report, this week's calendar also features U.S. data on consumer confidence on Tuesday, pending homes sales on Wednesday, weekly jobless claims on Thursday followed by personal income and spending which includes the personal consumption expenditures inflation data, the Fed's preferred metric for inflation, on Friday. Headlines from Washington will also be in focus, as traders await further details on President Donald Trump's promises of tax reform following the House's failure to vote on a plan to replace Obamacare late last week. 4. Euro Zone Flash March Inflation Figures The euro zone will publish flash inflation figures for March at 09:00GMT (5:00AM ET) Friday. The consensus forecast is that the report will show consumer prices rose 1.8%, slowing from a gain of 2% in February. Core prices are expected to increase 0.8%, easing from a rise of 0.9% in the prior month. Spain, France, Italy, and Germany will produce their own CPI reports throughout the week.
The Enhanced Investor Weekly Macro
3
The Enhanced Investor Weekly Macro
March 26, 2017
Despite the upward trend in inflation, ECB President Mario Draghi recently downplayed the significance of rising consumer prices, saying that underlying inflation pressure remains “subdued.� 5. Chinese Manufacturing Data for March The China Federation of Logistics and Purchasing is to release data on March manufacturing sector activity at 01:00GMT on Friday, amid expectations for a modest improvement to 51.7. On Saturday, the Caixin manufacturing index will be released at 01:45GMT. Anything above 50.0 signals expansion, while readings below 50.0 indicate industry contraction.
The Enhanced Investor Weekly Macro
4
The Enhanced Investor Weekly Macro
March 26, 2017
Long-Term Fundamentals FAS - Bull Financials - Tracks the Russel 1000 and hold the following (if the rally continues/OPEC agrees to a six-month extension)
The Enhanced Investor Weekly Macro
5
The Enhanced Investor Weekly Macro
March 26, 2017
CURE - Bull Healthcare (Healthcare should do well for the next few weeks/biotech too)
The Enhanced Investor Weekly Macro
6
The Enhanced Investor Weekly Macro
March 26, 2017
UCO - Bull Crude Oil: USLV - Bull Silver Currently in both given OPECs recent comments on a six-month extension coupled with “driving season� I anticipate a market correction in May, in which case, you can get into FAZ (Bear Financials), or VXX (w/leverage).
The Enhanced Investor Weekly Macro
7
The Enhanced Investor Weekly Macro
March 26, 2017
Additional Info For any newcomers who don’t know me, I’ve been contributing via the Enhanced Investor Weekly Macro Reports under #WatchList for over a year now. I began the education portion of this newsletter back in November due to the market action at the time. My in-depth knowledge of bubbles relative to political shifts and global economics, emerging markets, and monetary/fiscal policy needed to be shared, so I decided that it was simply not enough for beginners, or even intermediate traders because in order to have the ability to synthesize what’s truly happening - you need to be operating at the MBA/PhD level. As I’ve noted before, unfortunately, some PhD’s forget the basics. Whether that’s due to moral hazard, or plain and simple hubris, I can’t comment on that. Anyway, as I said a few weeks ago, it’s not fair for me to assume that all of you have what those at investment banks call “financial sophistication”, but that’s why we’re working together here at Enhanced Investor. Monitoring Wall Street and Washington helps us gain the upper edge. It’s why we do this. Anyway, I am more than happy to help, so if for some reason I don’t receive a tag in the #mainstockchat, or you don’t direct message me on Discord, please feel free to email here adamwood@fas.harvard.edu or you can tag me on StockTwits @ EILeadMacroAnalyst. Don’t fear a bubble - ever. We do not fear bubbles here at Enhanced Investor. Why? Because we’re armed with the strategic, tactical, and historical knowledge of every major bubble that has ever occurred. From the Tulip Mania of 1637 to the Housing Crisis of 2008 and the current market conditions - we’re prepared.
The Enhanced Investor Weekly Macro
8