The Enhanced Investor Weekly Macro
April 9, 2017
ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap Hello All, After a full week of travel to D.C. and back and forth from Harvard, here we go. Over the past week, we’ve seen just how important a role politics plays in economics. This is why I study what I do, and continue to provide everyone with the best information at-hand. Here are the top concerns at the moment and what to watch for: 1) Geopolitical movement in Syria and North Korea 2) Push Factors in Crude and Gold 3) Natural Gas storage and movement towards the end of the month With the US military involvement in Syria, we’ve now seen exactly what occurs when missiles fly. Oil jumped 2%, prior to a mild pullback, Gold pushed $15 an ounce, and the indexes paused. We will continue to monitor Syria, as well as any mention of military action against North Korea as has been discussed at length recently. Finally, the Jobs report and unemployment. The projection on Wednesday was 274,000, the actual 87,000. The differential is concerning, however I can assure everyone that it is quite normal for a modest pullback in the employment sector after such gains. The unemployment rate, however dropped to 4.5%. Based off of my calculations, full employment Watch the Trump’s interactions with actually equates to 3.8%. Once we hit this number, pay close attention to the China this week and monthly employment additions, as well as new unemployment numbers.
Market Update
next for any movement on North Korea - oil and gold funds to be in play.
In the holiday-shortened week ahead, market players will focus on comments The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
April 9, 2017
from Federal Reserve Chair Janet Yellen for further hints on the timing of the next U.S. rate hike and clues on how the central bank plans to pare back its balance sheet. Traders will also keep an eye out on a few U.S. economic reports before the long Easter weekend, with Friday's inflation and retail sales data in the spotlight. This week also marks the start of the first-quarter earnings season in the U.S. Meanwhile, in the U.K., market participants will be looking ahead to reports on consumer prices and employment for further indications on the continued effect that the Brexit decision is having on the economy. Billions have been pouring out of London and into Paris of late, so that is definitely something to continue watching. Elsewhere, China is to release what will be closely watched trade and inflation data amid ongoing concerns over the health of the world's second biggest economy. 1.
Fed Chair Yellen Speaks
Federal Reserve Chair Janet Yellen is set to speak at the University of Michigan at 4:10PM ET (20:10GMT) on Monday. Audience questions are expected. Her comments will be monitored closely for any new insight on policy and the timing of when the Fed will next raise interest rates. The Fed chair could be asked about the U.S. central bank's plan to start shrinking its massive balance sheet, which ballooned to $4.5 trillion in wake of the financial crisis. The Fed has not yet offered details on how it would reduce its holdings of Treasury’s and mortgages but said it would like to start later this year. Continue to watch USLV for pullback opportunities*
The Enhanced Investor Weekly Macro
Pay close attention to any geopolitical movements this week. USLV, FAS, and RIG on the verge of base-breakouts.
Another topic of interest will be the Fed's concern that the stock market may be overvalued, as revealed in last week's minutes from the central bank's March policy meeting. The Fed's next meeting is scheduled for May 2-3 while investors currently expect another rate hike in June.
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The Enhanced Investor Weekly Macro
April 9, 2017
2. U.S. March Inflation & Retail Sales The Commerce Department will publish March inflation figures at 8:30AM ET (12:30GMT) Friday. Market analysts expect consumer prices to ease up 0.1% while core inflation is forecast to increase 0.2% On a yearly base, core CPI is projected to climb 2.3%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less. Rising inflation would be a catalyst to push the Fed toward raising interest rates. At the same time Friday, the Commerce Department will publish data on March Retail Sales. The consensus forecast is that the report will show retail sales fell 0.2% last month, after gaining 0.1% in February. Core sales are forecast to inch up 0.2% after rising 0.2% a month earlier. Rising retail sales over time correlate with stronger economic growth, while weaker sales signal a declining economy. Consumer spending accounts for as much as 70% of U.S. economic growth. Whereas inflation prompts the rise in metals, especially silver (USLV). Besides the inflation and retail sales reports, this week's calendar also features U.S. data on producer prices, initial jobless claims as well as Michigan consumer sentiment. Headlines from Washington will also be in focus, as traders await further details on U.S. President Donald Trump's promises of health care and tax reform. As I’ve mentioned, please pay attention to any more military and geopolitical movements. 3. U.S. Q1 Earnings Season Kicks Off Wall Street’s first-quarter earnings season kicks off this week, with major U.S. banks JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) all reporting Thursday. The financial sector is projected to post a 15.4% profit gain, second only to energy among S&P sectors, with revenue rising 7.5%. This is why I like FAS this week and next. For the broader market, earnings are forecast to grow 10.1% from a year ago, the best since 2014, while sales growth is expected to jump by 7.5%, the best since 2011, according to Thomson Reuters. A strong earnings season would help justify pricey stock valuations, with the S&P 500 rallying this month to its most expensive since 2004 on a forward price-to-earnings basis.
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
April 9, 2017
4. U.K. CPI & Employment for March The U.K. Office for National Statistics will release data on consumer price inflation at 08:30GMT (4:30AM ET) on Tuesday. Analysts expect consumer prices to rise 2.3% unchanged from a month earlier. At 08:30GMT (4:30AM ET) Wednesday, the ONS will publish the monthly jobs report. The claimant count change is expected to fall by 3,000 in March, with the jobless rate holding steady at 4.7% Wage growth including bonuses is forecast to rise 2.2% Recent data has pointed to signs that rising inflation, caused in part by the pound's post-Brexit vote tumble, is crimping spending by consumers, the main drivers of the economy, just as Prime Minister Theresa May begins Britain's EU divorce talks. 5. China March Trade Data China is to release March trade figures at around 03:00GMT on Thursday (11:00PM ET Wednesday). The report is expected to show that the country’s trade surplus widened to $10 billion last month from a surprise deficit of $9.15 billion in February. Exports are forecast to have climbed 3.2% in March from a year earlier, following a decline of 1.3% a month ago, while imports are expected to rise 18% after increasing 38.1% in February. Additionally, on Wednesday, the Asian nation will publish data on March consumer and producer price inflation. The reports are expected to show that consumer prices rose 1% last month, while producer prices are forecast to increase by 7.6%. China's economy grew 6.8% in the fourth quarter, boosted by higher government spending and record bank lending. But the economy still faces headwinds from a cooling housing market and possible protectionist measures from the U.S.
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
April 9, 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
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