Client Talking Points
The Yen is down -0.2% vs. USD this this morning at 113.72 and that registers an immediate-term TRADE oversold signal inasmuch as the Nikkei signaled immediate-term overbought late last week (buy Yen, short Japanese stocks remains our current view there as the #BeliefSystem in central-market-planning breaks down).
Dollar Up, Oil Down this morning – plenty of “reflation” trades are barely hanging on into month-end and now WTI is signaling its first series of short-term lower-highs (exhaustion signal) between 42-43. We imagine Janet Yellen will determine the next USD/Commodities trade with her commentary this week.
After an ugly last week, equities are trying to bounce but unimpressively so post the Easter break – Italian Stocks (MIB) were -2.4% last week and +0.6% early this morning, but -14.6% year-to-date and still in crash mode -24% vs. this time last year when many thought European growth was going to be just fine (its consistently slowing now).
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Top Long Ideas
CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.
Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.
We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.
In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).
While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:
Three for the Road
TWEET OF THE DAY
McCullough: Short Rich People? https://app.hedgeye.com/insights/49961-mccullough-short-rich-people… via @KeithMcCullough
QUOTE OF THE DAY
It meant being reasonable, tolerant, honest, virtuous, and candid.
STAT OF THE DAY
Over 10,000 bars have shut down in the past decade—with closures reaching a peak of six per day in 2014.