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Position: Long Sweden (EWD); Short Euro (FXE)

Below we include a portion of a product offering from our Financials’ team, the Weekly Risk Monitor for Financials that tracks CDS across global banks. The table below covers major banks throughout Europe and the trend week-over-week was mixed, tightening for 23 of the 39 reference entities, widening for 15, and flat for 1.

Risk Monitor: European Bank Swaps Mixed - sw1

Risk Monitor: European Bank Swaps Mixed - sw2

Our attention remains acutely on the health of each of the PIIGS due to their volatility and contagion effect across the continent. We have particular focus on Spanish banks given their recent widening, and high foreign exposures (4x higher than to Greek banks, or $989.8 Billion), according to the latest data from the Bank of International Settlements.

The European credit markets continue to be an important indicator of risk for us. As the chart of 10YR government bond yields below presents (and in sharp contrast to the outperformance of the equity market of the PIIGS year-to-date) yields continue to trend higher, a reflection of the risk premium to own the debt and deficit imbalances of these nations.

Risk Monitor: European Bank Swaps Mixed - sw55

We remain long Sweden (EWD) and short the Euro (FXE) in the Hedgeye Portfolio with the EUR-USD trading in a range of $1.34-$1.37. From a fundamental standpoint, we continue to like countries like Sweden and Germany that demonstrate fiscal discipline, political stability, and a healthy growth profile for this year and next.

Matthew Hedrick