CLIENT TALKING POINTS

USD

And… the buy signal – in US Dollar being immediate-term TRADE oversold at 93.62 on the USD Index with an immediate-term range of 93.62-95.48 and a EUR/USD risk range of 1.10-1.14. Good spot to raise cash (again) in USD.

Commodities

Not surprisingly, the USD oversold signal registers overbought signals in the CRB Index, Gold, and Copper – WTI’s overbought level right around $49.99/barrel (CRB Index overbought level = 193); Copper backing off 1st, as it’s the weakest of the reflation hands short-term traders are willing to hold.

Europe

Big mean reversion move higher this morning for European Equities (which got hammered again last week); Italian stocks leading +1.8% on the MIB Index (after falling another -3.8% last week to -19% YTD); that’s helping US Equity futures, but #EuropeSlowing is not (yet) the latest bull case for US stocks.

TOP LONG IDEAS

MCD

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

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

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
6/6/16 76% 0% 0% 6% 12% 6%
6/7/16 74% 0% 0% 4% 14% 8%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/6/16 76% 0% 0% 18% 36% 18%
6/7/16 74% 0% 0% 12% 42% 24%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

THREE FOR THE ROAD

TWEET OF THE DAY

Yikes: Yellen’s Favorite Market Indicator Hits 7-Year Low app.hedgeye.com/insights/51446… @federalreserve

@KeithMcCullough

QUOTE OF THE DAY

“I don’t believe in luck, I believe in preparation.”

                                                    -Bobby Knight                                                 

STAT OF THE DAY

Ted Williams had a career batting avergage of .344 with 521 home runs.