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SONC's fiscal 3Q09 top-line numbers came in worse than expectations with system same-store sales down 5.4%. The company was lapping its first quarter of easy sales comparisons, and management set expectations high when it highlighted this fact during its second quarter conference call, saying, "As a reminder, as we move into the third and fourth quarters, our same-store sales comparisons at partner drive-ins will become increasingly easier." Unfortunately, these easy comparisons did not translate into improving same-store sale trends. Instead, comparable sales deteriorated further from 2Q09, down 7.7% at partner drive-ins and -4.9% at franchise drive-ins, and worsened as the quarter progressed with May sales coming in lighter than March and April.

Like last quarter, SONC's declining average check became increasingly problematic. Following the introduction of its Everyday Value Menu in late December, SONC's traffic trends have turned less negative at the expense of its average check, which fell 4.9% in 3Q09 following -3.4% and -1.9% in 2Q and 1Q, respectively.

SONC - A BALANCING ACT - SONC 3Q09 traffic and average check

SONC is not alone in this balancing act between traffic and check with some of its QSR peers choosing to chase traffic at the expense of check and margins (MCD) and others failing to drive traffic with their premium-priced brand strategies (CKR). SONC had allocated all of its advertising dollars to promoting its new value offerings from January to April, which curbed traffic losses, but with its average check declining further, the company reallocated some of its marketing dollars back to its premium offerings in May. And what happened? Traffic was softer in May. Management recognizes that it must work to fix its average check and has introduced initiatives to do so, primarily by trying to re-engage its customers with its higher priced combo meal offerings, but there is no easy fix, particularly in this environment. As management stated, "Value is the number one item driving traffic these days and we need to make sure that traffic is sustained."

SONC ‘s quick success in its ability to drive traffic with the Everyday Value Menu, which grew to 10% of sales within 3 months of its introduction, and the subsequent fall off in traffic in May as the company decreased its marketing spending around the value menu only increases my conviction that CKR will not work in this environment. The company will not be able to drive traffic with its premium menu items. When CKR reports its fiscal first quarter results after the close today, management will continue to maintain that it must protect its brand and will not succumb to selling "margin-eroding" products. We already know that sales trends worsened during the quarter, particularly at Carl's Jr., which were down 5.1%, and I don't see them improving under this current premium sales strategy.

Despite the continued top-line weakness and declining average check, SONC's fiscal 3Q09 margin performance did provide some good news during the quarter. Both restaurant level and operating income margins declined YOY but improved rather markedly on a sequential basis.


The company's refranchising efforts have seemed to help on this measure. In the third quarter, alone, SONC refranchised 177 units, bringing this year's total to 194 and lowering the company's partner ownership mix to 14% from closer to 20%. The positive impact from these refranchising efforts was felt rather immediately as underperforming partner drive-ins that were refranchised had less of an impact on margins and SG&A expenses came down as a percent of sales. As the company benefits from increased royalty revenues and focuses on fixing the fewer partner drive-ins in the system, margins should continue to improve going forward. In the near-term, however, there will some offsets to these margin improvements as the company is facing increased pressure on the labor line in 4Q09 with minimum wage rates set to increase yet again in July. Additionally, although management is expecting commodity costs to come down YOY in the fourth quarter, food costs as a percent of sales are expected to be flat to up as a result of the company's increased contribution from its value menu. SONC has done a good job of managing this food cost line following the introduction of its Everyday Value Menu but we knew it was only a matter of time before margins would take a hit from this new menu.



Retail First Look: 6/24/09


After the close tonight, two of the higher-profile names in consumer discretionary print numbers - Nike and Bed, Bath & Beyond. Nike has seemingly dominated my own focus, but don't forget that BBBY is one of our core names that we will consistently revisit at the right price. My colleague Eric Levine is the man on BBBY here, and I thought the following exchange this morning might be useful to you.

Levine: "I'm modeling EPS a couple of cents ahead of the $0.25 Street number.  Guidance was $0.23-$0.24.  Same store sales are tracking in the low-single digits as best as I can tell, which is a sequential improvement from 4Q when they declined by 4.2%.  Upside in the quarter should be driven by the gross margin line which is expected to benefit from a less promotional environment and building benefit from less competition.   Bottom line here is that the quarter should look fairly similar to 4Q in terms of key drivers, which in this case is a slightly negative topline and a better gross margin line. 

McGough: "Wont that be bad in light of BBBY's multiple and what we saw out of BBY last week (when it beat, but on a weaker top line)?"

Levine: "No, I don't think so. Comps at BBY ended up being worse than expected with people focusing on the fact that CC's liquidation didn't have as a big an immediate impact as expected.  My sense is that there is less "hype" built in to BBBY when it comes to Linens and the revenue line.  I still think a sequential improvement in comps with a better gross margin line will be taken positively."

Bottom Line:  Collectively, we like BBBY.Over the next 12-24 months BBBY is a  "mean revision" story, driven by an improving economic backdrop, the elimination of the company's most direct competitor, and the bottoming of the worst period in modern history for home furnishings consumption.  Gross margin recovery is the most overlooked item by the Street and the source of upside over the near and intermediate term.  A more rational promotional environment driven by Linen's absence is key to the story.  Modest square footage growth of 5% coupled with operating margin recovery should drive FCF growth in excess of 15% over the next 2 years.  Cash flow yield remains attractive at 6.1% ('09) and 9.0% ('10) respectively. Multiples are full, so this needs to be an earnings-driven story. The good news is that the Street's numbers are 1-year behind. $0.25-$0.30 beat per Yr1 and Yr2 = $5-$6/yr.



Some Notable Call Outs 

  • Slightly better SportscanINFO numbers last week, but the headline is deceiving. There was a marked improvement in the athletic specialty channel, but additional weakness in mass and family channels. That drop-off is so severe that any sane analytical mind needs to question the validity of the data.
  • Consistent with commentary from other consumable-driven retailers, Kroger highlighted relative strength in its own/private brand products with sales up double-digits. National brands declined slightly for the quarter, albeit at a lesser rate than in 3Q and 4Q. Clearly price sensitivity is driving this trend. Inflation was 3.6% for the quarter, reflecting increases in grocery, drug, general merchandise, nutrition, and deli/bakery. Deflation remains prevalent in produce and dairy. Consumers continue to exhibit cautious shopping patterns as demonstrated by more frequent visits that are resulting in lower average basket sizes. Overall, there have been no measurable changes in the company's performance or the consumer's purchasing habits over the past few months.
  • Over the past year J Crew has joined many other brands by using the "sample sale" as an incremental tool to clear inventory. While reports from consumers have generally been moderately disappointing in terms of quality and price of the merchandise, it is likely that these events have helped to clean up inventory as sales have slowed. The 4th such sample sale is now slated to take place beginning July 12th.
  • In another twist on the sample sale, 20 retailers in Charlotte, NC have pooled their excess inventory to throw one massive sale event later this month. In a normal environment we would never see competitors getting together under one roof!



Zach's overview of items you're unlikely to find in the general press.

  • The Indonesian footwear sector is in a state of euphoria over the fact that prospects of sales in domestic and overseas markets have increased due to a slowdown in imports of Chinese footwear and a rise in demand from the European Union. Sales in the domestic markets have visibly increased since the government clamped down on imports from China by reducing the number the number of ports of entry to crack down on illegal imports, which was hurting the local producers. On the other hand footwear exporters are optimistic of growth in shipments from the country by at least 5% in the second half of 2009, due to a renewal in demand from the overseas markets, mainly the European Union which accounts for 37% of Indonesia's footwear exports. Local manufacturers have been able to increase their market shares by more than 7 percent due to clamp down on imports. Shoe production reached 1.2 billion pairs last year and is dominated by sports shoes which account for about 800 million pairs. Domestic sales touched 235 million pairs, of which 40% were manufactured locally and the rest imported. <http://www.fibre2fashion.com/news/daily-textile-industries-news/newsdetails.aspx?news_id=74089>
  • According to a report, the Russian luxury market is dramatically transforming under the influence of the economic crisis. Stagnation of the Russian economy, devaluation of the national currency, the growth of unemployment, and the falling of purchasing power will reduce value of the Russian apparel market. IndexBox predict consumers' expenditures for luxury apparel, footwear, and accessories will fall 30% in 2009, compared with the same period of the previous year. <http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090622005651&newsLang=en>
  • Indian Apparel exports fell by close to 10 per cent in April this fiscal and exporters expect an equally disappointing data for May of down 10% to 15% under impact of global downturn.  Garment exports from the country dropped to 10.75%. For May there are very few orders from the US and EU markets. Indian exporters face the double whammy of declining demand and competition from Vietnam, Cambodia and Bangladesh. "We are losing out our competitive edge to neighboring countries where exporters enjoy more incentives... they managed to have a greater presence in the western markets," Vaid added. <http://economictimes.indiatimes.com/Economy/Apparel-exports-slip-10-pc-in-April/articleshow/4683603.cms>
  • Fashion houses, designers and retailers are rushing into the free social media phenomenon that is reshaping not only interpersonal communication, but how apparel, accessories and beauty products are marketed and sold. They are tweeting, blogging and updating their profiles in an effort to mold their brand personalities on real-time global platforms and form relationships with a community of customers, particularly consumers for whom the Web is as important as a limb. <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>
  • Payless ShoeSource, the retailer on a mission to democratize fashion in footwear and accessories byoffering the most in-demand styles at affordable prices, announced today its summer collection featuring the season's hottest trends. The line includes gladiator sandals, embellished wedges, nautical details and colorful canvas so everybody can have access to the latest looks - all at a great price. The retailer is currently stocking shelves with hot summer styles for on average under $20 an item, with many styles for under $15. ThePayless summer collection reflects the most current trends with a diverse array of silhouettes, colors, materials, and details to suit any
    outfit. With today's focus on stretching dollars, shoppers can update their wardrobes and snatch up even more of the latest fashions and still stay within their budgets. <http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=APPSEAR.story&STORY=/www/story/06-22-2009/0005047988&EDATE=MON+Jun+22+2009,+11:07+AM>
  • At the Men's Wearhouse shareholder meeting, management announced that promotions like buy one, get one free that are driving business in the down economy, will remain because they believe the economy has not yet begun to recover. <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>
  • The TJX Cos. Inc. will pay a $5.5 million settlement, $2.5 million to establish a data security fund and $1.8 million to cover the states' investigation costs over cyber theft in 41 states. The agreement puts an end to the states' investigations into the retailer's culpability in the massive security breach, through which hackers stole information on 45.7 million credit and debit cards from the company's computer systems during 2005 and 2006, TJX said.  <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>
  • The Obama administration filed its first World Trade Organization case against China on Tuesday over export restraints on raw materials that it charges provide an unfair advantage to Chinese industries, while limiting access and raising costs for countries importing the goods. Although the materials covered by the complaint are not used in apparel or footwear making, textiles and leather could be the next step. The materials included in the complaint are mainly used in the production of steel, aluminum, and other chemical products: bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus and zinc). The downstream products that incorporate the raw goods at issue cover a wide range of items, including textile laminates, cosmetics, flame retardants, fiber products, consumer electronics, automobiles and contact lenses. <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>
  • The Organization for Economic Co-operation & Development forecast Tuesday that more than 57 million people will be unemployed in rich nations by the end of 2010, up nearly 20 million from 37.2 million at the end of 2008. The agency said the surge in the jobless numbers will bring the OECD unemployment average to around 9.9 percent, the highest since the Seventies, when it averaged 9.8 percent. Obama was on the tube yesterday saying that Unemployment will reach 10% in the US.  If you remember from the conference calls of Q4 08, companies like Macy's baked in their longer term estimates based on the assumption that unemployment in the US would be 9%.  We are now only a few bps from 10% unemployment. <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>
  • AmericasMart officials hope a recent executive change and a renewed commitment to buyers' market experience will position the show for growth once the economy bounces back. In the meantime, officials are offering retailers more incentives to shop in Atlanta, including expanding the show to a fiveday, Thursday-to-Monday format, providing educational business seminars during market and offering additional show perks. Product callouts: In sportswear and dresses, immediates are selling best and there is a buzz in the accessories market. <http://www.wwd.com/retail-news/dallas-market-on-the-right-path-2186771?navSection=retail-news>
  • Having struggled with exhibitor exodus and dwindling buyer attendance over the last year, a toned-down ASR is starting to emerge, and organizers are taking aggressive measures to lure buyers and exhibitors alike. Tompkins said ASR's prices for the Sept. 10 to 12 show were reduced by about 25 percent over last September, and organizers are infusing new life to the show through a five-year licensing deal - valued between $1 million and $2 million - with Class trade show founder Jason Bates to bring his two-year-old concept to San Diego. Called Class@ASR, the idea is to bring fashion-forward, upscale brands to the mix, adding diversity to an exhibitor roster traditionally comprised of surf-skate stalwarts. The Class addition will target boutique buyers and some 100 contemporary labels, including Modern Amusement, Original Penguin and Howe. The show will take place in the San Diego Convention Center with ASR, but will be curated and organized separately. <http://www.wwd.com/retail-news/dallas-market-on-the-right-path-2186771?navSection=retail-news>
  • Organizers of international textile shows have already seen the poor economy cut into their exhibitor and attendance figures, but believe pent up demand and faint glimmers of optimism will lift their shows during the last half of the year. <http://www.wwd.com/retail-news/dallas-market-on-the-right-path-2186771?navSection=retail-news>
  • Father's Day Sales Better Than Expected -Promotional and last-minute. Those words described Father's Day business for retailers around the country last week. Even so, most stores were pleased with the way sales wound up and are optimistic the modest pickup they've been experiencing for the past several weeks will continue into fall and holiday. Casualwear, most notably colorful polos and woven sport shirts, were among the most popular items. And the catchphrase of the season is lean inventories. After getting burned last fall and holiday with an overabundance of goods, retailers have slashed their budgets and are now carrying the bare minimum in order to inch their margins back to acceptable levels. <http://www.wwd.com/retail-news/dallas-market-on-the-right-path-2186771?navSection=retail-news>
  • In an effort to reach more independent retailers nationwide, Nina Shoes has launched an Internet initiative catering exclusively to smaller specialty boutiques in the country's harder-to-reach regions. The wholesale portal, which launched in the spring and will make its debut at WSA in July, is targeted toward independent retailers in areas without local sales representatives and those that have difficulty attending trade shows. <http://www.wwd.com/footwear-news/nina-launches-wholesale-website-2186792?navSection=footwear-news>
  • A small sports-licensing company in Westwood, Mass. has sued Nike Inc. and the Naismith Memorial Basketball Hall of Fame Inc. for fraud and breach of contract over a proposed Nike line of Michael Jordan sportswear. SportsFuzion Inc. claims Nike and the Hall of Fame's plans for a "Air Jordan Hall of Fame" apparel collection circumvent a 2006 contract that it said gave SportsFuzion exclusive sportswear licensing rights to the Hall of Fame's trademarks and logos. <http://www.sportsonesource.com/>
  • U.K. online sales up 14% in last 12 months, London trade group reports - Online retail sales in the U.K. grew 14% from April 2008 to April 2009, the Interactive Media in Retail Group and technology and consulting company Capgemini report. U.K. consumers spent £43.8 billion (US $61.7 billion) online last year. <http://www.internetretailer.com/>
  • LVMH Moët Hennessy Louis Vuitton and Chicago-based Monastery Hill Bindery have ended their legal battle over the luxury house's Epi Leather trademark on hotel guest room binders sold to the Grand Hyatt that infringed on the Epi pattern, which is made up of two-tone wavy lines. Monastery Hill admitted no wrongdoing but entered into an injunction barring it from infringing upon the Epi trademark and will stop selling the product and destroy the remaining stock. <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>
  •  French President Nicholas Sarkozy on Monday said the burka, the traditional Islamic garment worn by women that covers the face entirely, is unwelcome in France. The country's National Assembly on Tuesday said it has created a commission of 32 deputies to investigate whether women should be allowed to wear burkas. But, some worry that banning the garment could have a detrimental effect on French business. That could especially be the case for top-end hotels, many of which are owned or frequented by Arabs, and for bastions of the luxury trade. <http://www.wwd.com/business-news/exec-search-firm-berglass-expands-program-to-e-commerce-2187064?navSection=business-news>


Slight Sports Apparel Rebound

Slightly better SportscanINFO numbers last week, but the headline is deceiving. There was a marked improvement in the athletic specialty channel, but additional weakness in mass and family channels. That drop-off is so severe that any sane analytical mind needs to question the validity of the data.

Slight Sports Apparel Rebound  - table

Slight Sports Apparel Rebound  - chart1

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Begin With Doubt

"To believe with certainty we must begin with doubting."
                Stanislaw Leszczynski
After a big market decline on Monday on concerns surrounding the uncertainty of the global recovery, yesterday's performance lacked any real overriding theme.  The most dominant macro theme in the past six months seemed to lack certainty; the dollar fell to its lowest level in two weeks, finishing down 1.1% yesterday as the S&P was virtually unchanged.
On the back of the declining dollar, Materials and Energy outperformed while the underlining reading on the health of the consumer continued to weaken.  No matter where you look to, housing, confidence or retail sales, the incremental news on the consumer continues to suggest that momentum is slowing; the Consumer Discretionary (XLY) was the worst performing sector yesterday, declining 1%.    
The set up for the market today centers on the FOMC meeting and interest rate expectations.  The debate surrounding the meeting revolves around the implications of the balancing act on the part of the Fed to try to both dampen near-term tightening expectations and also try to mitigate inflation concerns by outlining an exit strategy from the free money strategy.
The FOMC committee members will be waking up today to the fact that the Organization for Economic Cooperation and Development (OECD) has raised its forecast for the economy for the first time in two years as the U.S. economy shows signs of improving in the second half of 2009.
As part of my research process, I connect with the management teams of three or four companies every week to try to gauge how business is tracking.  I have yet to find one that will tell me that the trends are getting better.  President Obama is correct to say that "the American people have a right to feel like this is a tough time right now" because it is!  The 32% move from the March 9th low has allowed consumers to be more optimistic "than the facts alone would justify."  I feel much better now that the President has given me permission to feel like crap.
Early this morning, the dollar is weaker and the futures are higher and there are lots of doubts about what the Fed will do.  While the FOMC is unlikely to raise rates today, you can be certain they will need to plan an exit strategy.  
Good luck out there today,
Howard Penney
Managing Director


EWZ - iShares Brazil-President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt -leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country's profile matches up well with our re-flation theme.

QQQQ - PowerShares NASDAQ 100 - We bought Qs on 6/10 to be long the US market. The index includes companies with better balance sheets that don't need as much financial leverage.

EWC - iShares Canada - We want to own what THE client (China) needs, namely commodities, as China builds out its infrastructure. Canada will benefit from commodity reflation, especially as the USD breaks down. We're net positive Harper's leadership, which diverges from Canada's large government recent history, and believe next year's Olympics in resource rich British Columbia should provide a positive catalyst for investors to get long the country.   

XLE - SPDR Energy - We think Energy works higher if the Buck breaks down.  

CAF - Morgan Stanley China Fund - A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

TIP- iShares TIPS - The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%. We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

EWI - iShares Italy - Italian Prime Minister Silvio Berlusconi has made headlines for his private escapades, and not for his leadership in turning around the struggling economy. Like its European peers, Italian unemployment is on the rise and despite improved confidence indices, industrial production is depressed and there are faint signs at best that the consumer is spending. From a quantitative set-up, the Italian ETF holds a substantial amount of Financials (43.10%), leverage we don't want to be long of.

XLY - SPDR Consumer Discretionary - We shorted XLY on 6/19 as our team has turned negative on consumer in the last week.  

XLP - SPDR Consumer Staples - We shorted XLP on the bounce on 6/17.   

SHY - iShares 1-3 Year Treasury Bonds - If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback.
EWW - iShares Mexico - We're short Mexico due in part to the repercussions of the media's manic Swine flu fear.  The country's dependence on export revenues is decidedly bearish due to volatility of crude prices and when considering that the country's main oil producer, PEMEX, has substantial debt to pay down and its production capacity has declined since 2004. Additionally, the potential geo-political risks associated with the burgeoning power of regional drug lords signals that the country's economy is under serious duress.



With all eyes focused on any signs of slackening demand from China, today's production and export order data from Taiwan was a disappointment. Orders declined by 20.9% year-over year, a sequential improvement from last month, while output registered at -18.31% y/y. Economists had predicted levels over 1% higher.

On a deeper dive basis, the export order data shows that "the Client's" appetite for high margin consumer electronics is demonstrating resilience, with order for electronic products in general  improving sequentially to -11.33%  while information and communication products have improved to -11.9% Y/Y (an increase of over 30% on a 3 year basis).  This demand acceleration has been felt by producers across the tech spectrum, with multiple firms guiding estimates higher for the second half based on rising sales to People's Republic.

Our Technology team posted on this data earlier today, in which they noted that order trends are starting to exhibit familiar expansion patterns on a longer term basis.

Although today's improving data disappointed many, we still see confirmation that consumer demand is strengthening in China -perhaps not enough to offset Taiwan's lost business in Europe and North America completely, but more than enough to support our strategic stance on "the client" himself.

Andrew Barber



Confidence “Shoots”

Western European indices bounced back mildly today after a substantial sell-off on Monday following the World Bank's downward revision on global growth.  The report reduced the Eurozone's economic outlook for this year to -4.7% from a March prediction of -2.7%.

Mixed signs of economic stability throughout Europe continue, yet recent sentiment data from Germany and France yield an improved picture for forward-looking conditions.  German consumer confidence rose in July for a second month according to a Gfk survey released today. The index rose to 2.9 from a revised 2.6 in June; the uptick comes on the heels of yesterday's report from the IFO that showed German business and investor sentiment improved for a third straight month in June. Business confidence also rose in neighboring France for the third straight month in June, according to the Paris-based statistics office Insee. Yet in contrast to the bullish survey a separate report indicated that French household spending unexpectedly fell 0.2% in May on a monthly basis or -1.6% from the previous year.

As Eurozone's two largest economies, the health of Germany and France will greatly drive the improvement throughout the continent as European countries are highly dependent on the EU as a trading partner.  The Eurozone Purchasing Managers Index out today shows signs of stabilization, yet the numbers are still at a low level (a reading below 50 indicates contraction).  Services PMI declined to 44.5 in June from 44.8 in May, short of economists' expectations of 45.8 and Manufacturing (PMI) rose to 42.4 from 40.7 in May, its highest level since September 2008.

We continue to view Europe's health on an individual country level. CPI for France stood at -0.3% in May on an annual basis, while Germany's came in at the Eurozone average of 0.0%, according to Eurostat. These levels should benefit consumers and increase sentiment, however today's French Services PMI would suggest the opposite as the reading fell to 47.5 from 48.3 in May. We'll be monitoring German unemployment, which actually came in 10 bps to 8.2% on the last reading, to rise sequentially, which we believe should dampen sentiment. We expect modest but improving negative GDP growth in 2H '09 for France and Germany and modest positive growth in 1H '10.

Matthew Hedrick

Daily Trading Ranges

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