CLIENT TALKING POINTS
USD
They eviscerated the Dollar on the jobs bomb (and ISM Services slowing print of 52.9 for May) taking USD down -1.6% on the day (massive 1-day move) and ramping up everything that is inversely correlated to it (which, at this point, from Gold to Russian and Australian stocks, are a lot of things) – can they do this daily?
UST 10 YR
Yield crashed on the news (that was in line with the change in Janet’s favorite labor market indicator index, btw) to 1.71%, which implies that A) the data is beating the Fed’s forecasters, big time, YTD and B) if she hikes into this, she’s going to implode all of the illusions of real growth (i.e. the aforementioned reflation trades).
Sectors
Get #TheCycle right and you’ve had your sector styles right – Utilities up huge on Friday +1.6% to +15.7% YTD – Financials down huge -1.4% to -1.3% YTD. Getting whipped around trying to day trade this is as easy as staying with the fundamental #GrowthSlowing TREND.
TOP LONG IDEAS
MCD
McDonald's (MCD) is testing fresh beef in 14 Dallas-area restaurants in an attempt to become a modern progressive burger company and better compete with smaller, premium chains. Part of the reason they haven’t done this in the past is because there hasn’t been enough supply of fresh beef for their demand.
The initiative will expand further to more markets over the course of the year to test both consumer perception and their supply chains ability. This could be a big move for MCD that will undoubtedly improve food quality and consumer perception of the company.
Also in the news over the last couple of weeks is MCD’s plan to move its HQ from Oak Brook to downtown Chicago. Although not important from an operational perspective immediately, it will help the company attract and retain top talent which will be beneficial overtime. MCD remains one of our top ideas in the Restaurant space.
TLT
Friday’s jobs report represented a complete shift to any renewed expectations of a June/July hike. The yield spread ended the week pinned near the bottom of the cycle low at 92 basis points (10yr-2yr yield %). And, looking at real-time rate hike expectations, the bid-yield of December 2016 Federal Funds Futures Contracts dipped 8 basis points day-over-day, implying the market’s expectations for the first rate hike is now in 2017!
GLD
That was the commentary that closed out a deflationary month of May – USD +3.1% with Gold -6.3% and the long end of the Treasury curve and the S&P roughly flat. Fast forward a week. Gold, the Treasury market, and Federal Fund futures don’t buy the hawkish rhetoric for a second.
We’ve shown our chart of the Y/Y% change in Non-Farm Payrolls numerous times, so Friday’s Jobs report was no surprise to us. Consumption and labor market strength are classic late-cycle indicators, but eventually these indicators peak and roll-over in rate-of change terms. Here's the Jobs Report breakdown:
- Non-Farm payroll additions totaled +38K in May vs. +160K est. and +160K prior. While the number was a bomb for those who follow the month-to-month sequential change (which is useless), we expected the weakness. To be clear, history paints a very clear picture. NFP additions peaked in Q1 of 2015 and have since rolled over. It’s part of #TheCycle.
Asset Allocation
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 6/5/16 | 80% | 0% | 0% | 4% | 8% | 8% |
| 6/6/16 | 76% | 0% | 0% | 6% | 12% | 6% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 6/5/16 | 80% | 0% | 0% | 12% | 24% | 24% |
| 6/6/16 | 76% | 0% | 0% | 18% | 36% | 18% |
THREE FOR THE ROAD
TWEET OF THE DAY
That explained the entire market move on Friday Jobs Bomb = Dollar Down -1.6% --> Rates crashed, Utilities and Gold ripped, Financials fell
@KeithMcCullough
QUOTE OF THE DAY
You have to learn the rules of the game. And then you have to play better than anyone else.
-Albert Einstein
STAT OF THE DAY
Greg Maddux had a ERA of 1.56 in 1994 while pitching 202 innings for the Atlanta Braves.
