Client Talking Points
The EUR/USD is trading down 90 basis points this morning as the prospect of the ECB’s Mario Draghi talking down the currency at the Jackson Hole meeting increases. “We’ll do whatever it takes” Part 2? We continue to call for growth slowing in the Eurozone (Q3 macro theme = #EuropeSlowing). We expect the Fed to raise rates ahead of the ECB and political and fiscal issues throughout the Eurozone to put downside support on the cross. This morning the ECB’s Vice President Vitor Constancio said the ECB will take further measures if it sees a significant risk to the outlook for inflation.
Down -5.8% week-over-week, the DAX index has been crushed along with its European peers, standing at a mere +2.5% year-to-date. If Germany with its exporting powerhouse (46% of GDP) alongside a weakened EUR/USD can't offset itself from the pack, who can? Our #EuropeSlowing call includes the ECB’s inability to move inflation far from the zero bound.
For much of the past 3.5 years, the VIX has been range-bound between 10-20, with occasional blips to 25 on front-month contracts. Yesterday’s close of 36.02 confirms a bullish phase transition for U.S. equity volatility that is unlikely to go away anytime soon. The move was eerily reminiscent of the 8/8/11 rip in the VIX that preceded several months of 30+ VIX closes. With the Fed gearing up to make a policy mistake in the coming months, could we be looking at a similar setup?
**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE.
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Top Long Ideas
One of the ways that McDonald's is going to take market share back is through one of the most popular items on its menu—the Egg McMuffin. "I honestly believe that if there is a silver bullet, it’s all day breakfast for McDonald’s," says Restaurants Sector Head Howard Penney. "And I do believe they’re going down that road and they will do it."
Penney adds that we’ll probably know more about that at the November analyst meeting and what the breakfast potential will be. There’s obviously a lot of things that go around MCD doing breakfast (e.g. shrinking other parts of the menu, etc).
"We continue to like Penn National Gaming here due to stable regional gaming trends, better than expected quarterly and annual earnings, and the Plainridge and Jamul contribution to PENN’s two-year growth story," writes Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan.
It was a very good week for those sitting behind the long-bond coming out of the FOMC minutes release on Wednesday. During a tumultuous 5-day stretch in which the S&P 500 fell over -5%, subscribers who followed our recommendation on TLT were sheltered from the market storm and gained almost +2%. Moreover, during the past month, TLT has gained +5.7% versus a -6.8% loss for the S&P 500 (a 1,200 basis point difference). In other words, it has paid handsomely to buck the consensus tide.
Three for the Road
TWEET OF THE DAY
5 Reasons Why the Fed Won’t Raise Interest Rates in 2015 https://app.hedgeye.com/insights/46004-5-reasons-why-the-fed-won-t-raise-interest-rates-in-2015 … via @HedgeyeDJ
QUOTE OF THE DAY
Keep your eyes on the stars and your feet on the ground.
Franklin D. Roosevelt
STAT OF THE DAY
New Home Sales in July were New Home Sales were +5.4% month-over-month and +26% year-over-year.