Client Talking Points
The UST 10YR hits 2.08% on slowing Durable Goods; rises to 2.16 on Janet Yellen's forecast – the #1 risk remains her forecast. FX market moves 70 basis points on this (USD vs both Yens and Euros), but looks far from convinced. The USD Index would have to breakout above 97 (Euro below 1.09) for us to believe that the market actually believes she’ll hike into the Q3 GDP slowdown.
This is the 8th time this year that the UST 2YR will test 0.75%, but on what? There’s certainly no inflation or growth data to support a rate hike – but Yellen has clearly been politicized to change her tune at the whim of stock market moves, so good luck with that. The UST 10YR risk range is low-vol and manageable = 2.07-2.21%.
What kind of stocks love the idea of USD up? Japanese and European stocks! Because their FX is down on that trade, but don’t forget the context of today’s Nikkei and DAX “bounce” (the German stock market is in crash mode -22% since APR). We would short more U.S. Financials and Industrials today too.
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Top Long Ideas
McDonald’s remains one of our Restaurant teams Best Ideas on the LONG side. We continue to believe that 3Q15 will be the inflection point for the company’s turnaround and that we are going to be looking at a much different company 1-3 years from now.
Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.
Penn National Gaming continues to be our favorite Regional Gaming stock.
Regional numbers for August have come in soft, but we predicted the August weakness. September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels.
Slower (and Lower) For Longer remains our non-consensus call. It's nice to see that the Fed is finally starting to see what the #GrowthSlowing late-cycle data does.
Our estimate for Y/Y% GDP for Q3 is a range of 0.1% to 1.5%. Even the Q/Q SAAR # that consensus hangs on will be comping against a 3.7% Q/Q SAAR GDP print (second revision). Good luck positioning for a rate hike. Prepare for the fade…. AGAIN.
Three for the Road
TWEET OF THE DAY
Cliggott: ‘Uncomfortably High Probability of Significant Correction’ https://app.hedgeye.com/insights/46495-real-conversations-doug-cliggott-an-uncomfortably-high-probability… via @HedgeyeDJ #markets
QUOTE OF THE DAY
I found out that if you are going to win games, you had better be ready to adapt.
STAT OF THE DAY
4.6 million people tuned in to watch Donald Trump on The Late Show with Stephen Colbert on Tuesday, a 46% increase from the previous Tuesday.