The enhanced investor weekly macro 5/29/17 by seitys

The Enhanced Investor Weekly Macro

May 29, 2017

ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap-Up Happy Memorial Day Everyone! Well, the “Comey” drop has already filled the gap. Thank you PPT. Additionally, the market appears agnostic with respect to any volatility related to Trump. With Pence “waiting in the wings”, that tells me that the government’s ability to rectify any Trumprelated issues will result in robust market performance… for now. Upon review of the Federal Reserve’s MoM (Minutes-of-Meeting), it appears that Fed board members have decided upon a more data-dependent approach, thus inciting a dovish tone and subsequent run-up in gold. The market is currently projecting a ratehike in June, however, stay tuned. If the next round of economic data is soft, I wouldn't be surprised to see them cite that reason to forgo a hike until July. The Fed also dropped an official notice of balance sheet reduction. Lael Brainard brought this up at HKS in March, but it’s official now. The central bank will announce cap limits on the total amount of maturing bonds it will allow to roll off each month without reinvesting. The process will allow the central bank to gradually shrink its $4.5 trillion balance sheet, while simultaneously easing concerns of investors, who were unsure whether the central bank would seek to adopt an aggressive approach to reducing its balance sheet. Gold should continue a run-up as long as the Fed begins to unwind these toxic assets. As mentioned last week, OPEC and non-OPEC members agreed to extend production cuts for another nine months. Oil prices fell close to 5%, following confirmation of the deal extension, as market participants had expected OPEC (and others) to announce deeper cuts. The United States must reduce production in order for this to translate into anything of significance. Thankfully driving season has just begun, so I’m looking at a run to at least $55. This is all predicated upon the US rate of production at the moment.

The Enhanced Investor Weekly Macro

May 29, 2017

This Week As I mentioned above, it’s been just over a week after the market experienced its largest one day sell-off in the past eight months. I was particularly interested to see the S&P 500 close at an all-time high on Thursday. The index had an amazing week, which included seven straight days of gains, a weekly increase of 1.46%, and three consecutive record closes. However, both fundamental and technical signs indicate the index's upward trajectory may not be sustainable. Flash PMI released for Europe and the US show that the global economy overall is growing. However individual releases for May show there is divergence among the economies. The European data continues to look very strong, Flash PMI remains at a 6-year high, consistent with very strong growth. The Flash PMI has been in an uptrend for a few months in the Eurozone. Perhaps even more telling, there's much stronger economic growth in the first quarter, up almost 25%. However, in the US there was a bit of a decline relative to manufacturing data, which continues to look fairly mediocre. Capital equipment investment has been below consensus for the month of April, without showing any upside momentum. Again, the Federal Reserve minutes released last Wednesday had two key components: the Fed’s outlook on the next rate hike and the balance sheet. Although the Fed appears to be prepping the market for June rate hike, any disappointing Labor Reports (one coming up this week), as well as soft economic data could create a more dovish tone within the board. The expectation for this Friday’s unemployment rate is low, 4.4%. As part of the Federal Reserve’s mandate, this has the potential to be viewed as an additional catalyst for a June hike. Additionally, financial markets remain quite strong, which indicates that Wall Street is currently agnostic to a rate hike. As for the Fed’s $4.5 trillion balance sheet, a consequence of QE having pumped liquid into the economic lifeline by purchasing Treasuries and MBS; is getting ready to scale down, but the Fed has been noting since Lael Brainard’s speech at HKS in March that, rather than sell all of the bonds, they will simply not reinvest the money once the bonds mature, in order to avoid a downturn in the market.

The Enhanced Investor Weekly Macro

May 29, 2017

This is key for markets. And as long as the Fed is pragmatic with respect to scaling out, the markets should not incur too much volatility. Sector leadership in the S&P 500 has been thin. Rather, it's been mega-caps pushing these record highs, but with no breadth, which is concerning. It remains unclear whether markets can sustain these prices. Additionally, thereâ&#x20AC;&#x2122;s complacency as the VIX, after a spike during the previous week, closed on Friday at 9.81, back to multidecade historic low territory.

! Oil Daily Oil, which earlier in the week saw some gains, pushing above the key $50 level, sank on Thursday after Saudi Arabia ruled out the Russian option of another three-month extension on top of the nine-month production cut extension that had already been priced in by markets. The downturn continued after warnings by the US Energy Information Administration that the purported extension cuts wonâ&#x20AC;&#x2122;t be enough to overcome US production.

The Enhanced Investor Weekly Macro

May 29, 2017

As a result, Crude fell over 4% for the day, but has since regained the key $50 mark. On Friday, it paired almost half those losses. Today Well, because the day is essentially over and the only thing that occurred was Draghi speaking (ECB President), let’s move forward! Tuesday Economists expect that US personal spending will have rebounded in April, after a weak first quarter, supported by higher salaries and tax returns. The Brazil Investment Forum features speeches by Brazilian President Michel Temer, Finance Minister Henrique Meirelles, and Petrobras CEO Pedro Parente. In Sao Paulo, through May 31. Investors who seek distressed assets at bargain prices, will follow this meeting closely. The Brazilian president is being investigated for alleged obstruction of justice. Comments and opinions expressed at such conferences have a high probability of creating short-term trading opportunities as well as reinforcing shifting of tends. U.K. Labour Party leader Jeremy Corbyn appears on BBC TV for an interview that will focus on personality rather than politics. 19:00 London time (14:00 EDT). Economic Calendar Events Personal Income is expected to rise from 0.2% to 0.4% Personal Spending is expected to rise from 0.0% to 0.4% S&P Shiller CoreLogic home prices is expected rise MoM 0.69% to 0.90% but fall YoY from 5.85% to 5.61% Consumer Confidence is expected to fall from 120.3 to 119.8, which is still incredibly high* Wednesday The market is suggesting that Brazil’s central bank is going to announce a .75 – 1 basis point cut from the current 11.25 percent, after inflation fell in April below its 4.5 percent target - the first time in seven years. Exxon Mobil (NYSE:XOM) is holding its annual shareholder meeting. Investor pressure is building for the company to provide more disclosure on its resiliency to climate change. In addition, a proxy advisory firm is urging shareholders to vote against the company’s executive compensation program, which awarded former CEO Rex Tiller-

The Enhanced Investor Weekly Macro

May 29, 2017

son—now US Secretary of State—a $27.4 million compensation package last year, including a $3.2 million salary. In Dallas at 09:30 (08:30 EDT).

! Hewlett Packard Daily 2015-2017 Hewlett Packard (NYSE:HPE) earnings are set for after the market close. Its market cap is $32 billion, with a total one-year return at 46.55%. HP reported a recent EPS growth rate of 6.67%, which is not a good sign compared to the industry average of 65.34%. Economic Calendar Events Mortgage Application, MBA prior was 4.4% Chicago PMI @ 58.3%, is expected to fall to 57% Pending Home Sales is expected to rise MoM from -0.8% to 0.3% Thursday US manufacturing most likely continued to expand at a robust pace in May, according to expectations for the ISM Manufacturing PMI release. Brazil’s economy probably expanded in the first quarter to leave a two-year recession behind. While economists see modest growth in 2017 quickening in 2018, explosive

The Enhanced Investor Weekly Macro

May 29, 2017

new graft allegations against both current and past government figures threaten to derail the nascent rebound. 08:00 in Rio de Janeiro (07:00 EDT) The U.S. auto market reports May results, possibly starting with Ford Motor (NYSE:F) at 09:15 EDT. Early estimates indicate another so-so month. General Motors (NYSE:GM) may report the biggest gain among top automakers.

! Economic Calendar Events ADP Employment is expected to rise from 177K to 180K Initial Jobless Claims are expected to tick up, from 234K to 239K Productivity is expected to decline, from 54.8 to 54.6, while cost is expected to fall much more significantly, from 68.5 to 67. Thus, relatively speaking, productivity rose far more than the straight read would indicate. US Manufacturing PMI is expected to remain flat at 52.5 Construction Spending is expected to risen from -.2% to 0.5% The Enhanced Investor Weekly Macro

The Enhanced Investor Weekly Macro

May 29, 2017

Friday Expectations are that US confirm payrolls grew by 180,000 in May, keeping the uptrend for monthly hiring in place since the start of 2016. Unemployment is expected to remain at 4.4%, and expectations are that wages component has finally begun to rise to reflect the “employee market.” ENERGY/COMMODITIES: Weekly Commodity Futures Trading Commission report on futures and options positions; Weekly Baker Hughes U.S. rig count; Weekly U.S. Department of Agriculture net export sales and shipments.

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 The Enhanced Investor Weekly Macro

The Enhanced Investor Weekly Macro

May 29, 2017

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