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European Risk Monitor: All Eyes On Greece

Positions in Europe: Long Germany (EWG); Short Spain (EWP)

 

As we’ve been calling out in our European work, headline risk has been hot and heavy in recent weeks in European capital markets as European leaders and market participants sift through solutions for and the implications of Greece’s fiscal imbalances.  Comments yesterday from Eurogroup head Jean-Claude Juncker that a total restructuring of Greece’s debt is out of the question and that EU leaders will decide on a new aid package for Greece by the end of June bulled up equity markets today (Greece’s Athex closed up +6%), boosted the EUR-USD, and depressed peripheral bond yields and CDS spreads (see charts below).

 

European Risk Monitor: All Eyes On Greece - b1

 

European Risk Monitor: All Eyes On Greece - b2

 

We remain grounded in our position that EU officials will continue to socialize the region’s fiscal ills in order to preserve the Eurozone, support the common currency, and limit cross-country banking exposure losses by granting additional bailout packages and potentially moderating the yield and/or maturity demanded on debt repayments to the bailout facilities by the periphery, a form of “soft” restructuring.

 

In any case, while we think that these support measures and subsidies could potentially bolster European markets and the common currency over the near to intermediate term, longer term fiscal health will not be attained unless a country like Greece is allowed to default and other peripherals are forced to adhere to their deficit reduction targets without concessions.

 

For now, given that EU leadership is content with a policy on debt of Extend and Pretend, our models suggest the EUR-USD has an immediate term TRADE range of $1.41-1.44, with a significant intermediate term TREND support level at $1.41. Should $1.41 break, we see a roughly 4% downside to $1.35 (See chart below).

 

European Risk Monitor: All Eyes On Greece - B3

 

Given Juncker’s statements yesterday and announcements last week from the Greek government of a fifth austerity package, including selling €50 billion of state assets over the next 3 years to help pay down its bloated deficit, the region could see mild respite over the next days and weeks. However, we caution on the precarious nature of headline risk. Just late last week Juncker was insinuating that Greece may not receive the IMF’s next bailout tranche, which sent markets tumbling!

 

As is typical for the start of the week, below we show our European Financials CDS Monitor. It shows that bank swaps in Europe widened for 34 of the 38 banks monitored week-over-week, while 4 tightened (see below). No big surprises here.

 

We’re currently short Spain via the etf EWP and long Germany (EWG) in the Hedgeye Virtual Portfolio. Spain’s fundamentals continue to be overshadowed by political uncertainty (Zapatero’s party lost major support in recent elections), ragingly high unemployment (20.7%), the persistent slide in housing prices, and in our assessment a high probability that Spain misses its deficit reduction target, which currently stands at 9.3% of GDP.

 

On the margin, and despite positive data out of Germany today (Retail Sales +3.6% in April Y/Y and Unemployment down 10bps to 7.0%), we're less bullish on Germany as the high frequency data has slowed in recent months and the Euro region remains mired in sovereign debt contagion.

 

Be vigil or steer clear,

 

Matthew Hedrick

Analyst

 

European Risk Monitor: All Eyes On Greece - b4

European Risk Monitor: All Eyes On Greece - b5


JUST ANOTHER CRISIS … SO WHAT?

This has already been a fascinating day, starting at 5am when the futures were indicating that the DOW would be up over 100 points on the back of news that a new bailout package for Greece could be around the corner.  AT the time of writing, the VIX is up 2%, USD is down 0.5%, the S&P 500  up 0.47% and the Euro is up 0.77%.  The Correlation Risk is being put right back on the table for June.

 

Looking at the data closer to home the economic numbers continue to roll over, confirming that STAGFLATION is a real and present danger and increasing the likelihood that the United States could be heading towards another crisis.  The major data points pertaining to the U.S. economy that were released today were all ugly.  But who cares? 

 

Today’s MACRO data points are ominous for this Friday’s employment report. 

 

 

CONFIDENCE

 

The Conference Board index of consumer confidence dropped 5.2 points in May; the index is now at its lowest level since November.  The Hedgeye Optimism spread continues to contract, as the expectations component led the decline falling to 75.2 from 83.2 (previously 82.6). The present situation component dipped to 39.3 from 40.2 (previously 39.6). Overall, the assessments of future business and labor market conditions fell in May.

 

JUST ANOTHER CRISIS … SO WHAT? - optimism spread

 

MANUFACTURING CONDITIONS

 

The downshift in U.S. growth has caught up to manufacturing sector as the ISM-Chicago index fell by 11 points to 56.6; the decline puts the index below its first quarter average of 70.2. The results look to be more than supply-chain disruptions, as new orders have fallen for three consecutive months, declining 22.4 points.  In addition, the gap between new orders and inventories (a proxy for future production) was -8.1 in May, compared with April’s 12.8. The new orders to inventory/gap turned negative for the first time since March 2009.  This puts STAGFLATION in play for the balance of this quarter and next. 

 

JUST ANOTHER CRISIS … SO WHAT? - Chicago PMI

 

 

HOUSING

 

Today’s Case-Shiller number was disappointing with home prices officially double-dipping in March.  The Case-Shiller 20-city NSA series fell -0.77% in March versus February and -3.6% versus a year ago.  13 of the 20 cities included in the composite hit new lows in March.  Hedgeye’s Financials team has been way ahead of this call, as the chart below shows, and their demand model is calling for an 18% downside in home prices in 2011 versus 2010. 

 

JUST ANOTHER CRISIS … SO WHAT? - shiller corelogicc 531

 

THE FRIDAY JOBS CLOUD

 

Today’s MACRO data points are ominous for this Friday’s employment report.  Manufacturers’ sentiment has been squeezed by higher fuel and food costs and the challenges being posed by the earthquake and tsunami in Japan are not helping.  The recovery that has generated so much optimism in the U.S. has been largely led by manufacturers as exports rose and business investment picked up and could unravel in short order if manufacturing continues to slow.  While housing’s double dip is not attracting much attention, joblessness is still the most pressing of consumers’ concerns.

 

 

Howard Penney

Managing Director


R3: FW M&A, Hermes, Social Commerce, & Li-Ning

 

R3: REQUIRED RETAIL READING

May 31, 2010

 

 

 

 

RESEARCH ANECDOTES

  • A look at Neiman Marcus’ multi-pronged approach to e-commerce illustrates why the luxury retailer is one of the early success stories in the industry with more than 15% of total sales now generated from the direct channel. The company is finding new ways to reach customers including blogs with fashion advice, social network integration, and even installing Wi-Fi in select stores to support mobile strategies. The pull vs. push model appears to be working with Facebook fans growing to 330,000 from 90,000 since the beginning of the year.
  • One of the byproducts of company’s seeking ways to reduce costs along the supply chain has been improved environmental practices. Case in point, Patagonia has just announced its “Our Common Waters” initiatives aimed to better measure and ultimately reduce water used in producing apparel and footwear products. Early results suggest over 700 liters of water go into making a shirt, far more than the 42 liter figure Levi published when it launched its WaterLess Jean Initiative last fall, which highlighted a 28% reduction in average water usage.
  • While not an elite tennis brand, it’s worth noting Li-Ning’s exposure during the Nadal vs. Ljubicic match at Monday’s French Open. With Marin Cilic also on the list of endorsed tennis athletes, the brand has two players in the Top 40 at #37 and #21. Yes, a far cry compared to Nike with two players in the Top 3, but Li-Ning’s exposure continues to gradually increase on the global stage.

R3: FW M&A, Hermes, Social Commerce, & Li-Ning  - R3 2 5 31 11

 

OUR TAKE ON OVERNIGHT NEWS

 

Footwear M&A Just Warming Up - Footwear firms are clearly in a buying mood. Five acquisitions, including Labelux Group’s marriage with Jimmy Choo, Steve Madden’s Topline and Cejon buys, Deckers’ deal with Sanuk and Fila Korea’s golf acquisitions, were concluded in the last two weeks alone, and the activity is set to ramp up in the months ahead, said experts. The overall strength of the footwear market is giving many players the confidence to make moves on the mergers-and-acquisitions front.“It’s easier to be bullish about acquisitions when you’re forecasting solid organic growth for your existing portfolio of brands,” said Don Grimes, SVP and CFO at Wolverine World Wide Inc., which continues to set aside cash to fund potential acquisitions. “Certainly an improved credit market and the availability of capital have played a role as well.” Greg Tunney, president and CEO of R.G. Barry Corp., said his firm is hunting for similarly sized acquisitions. “We’re looking for companies in the $30 million-to-$50 million sales volume range, and there are a lot of great companies out there [that fit the bill].” Regardless of the size, he added, “[the companies] have to be well-run and operated. We’re not interested in a fixer-upper or a distressed asset.” Finally, the increasingly challenging sourcing situation in China is prompting more firms to partner up. Madden said Topline, a privately held company based in Seattle, was attractive for the direct sourcing platform it owned in northern China, leading to better prices and potentially higher gross margins for the whole group. “It’s much more difficult for smaller people to do business in China. You need volume to be profitable,” added Chinese Laundry CEO Bob Goldman, who also is looking for acquisitions. <WWD>

Hedgeye Retail’s Take:  WWW has the right idea here, and they’ve proven to be so good at this model. But others, unfortunately, continue on with the ‘buy when we could, not when we should’ model.

 

LVMH's Puech Addresses Hermes' Shareholders Directly - Although Arnault has said he is not seeking full control of the maker of Birkin handbags and silk scarves, Hermès has vowed to protect itself from what it considers an unwelcome suitor. LVMH vice chairman Pierre Godé took to the floor at the Hermès annual meeting to formally refute Puech’s charges. “Contrary to any impression given elsewhere, LVMH has never sought to destabilize the Hermès family nor the company’s staff nor suppliers. I challenge those who assert otherwise to produce a shred of evidence — for the avoidance of doubt, there is none,” Gode said. “LVMH directors are rational and lucid people. From the outset we understood that there was no possibility of controlling Hermès because the family shareholders spoke for 70 percent of the company,” he added. “That aside, it would make no sense for LVMH to destabilize Hermès as it would risk compromising the success of this great company. The more this company prospers, the happier we all are as shareholders,” Godé added. Puech reacted to the comments with skepticism, saying recent facts spoke for themselves. <WWD>

Hedgeye Retail’s Take: This marriage would actually make sense on many levels. We can’t imagine what Hermes considers ‘unwelcome.’ Perhaps it’s the fact that LVMH has been buying at the market price and not at a 50% premium. That can be fixed pretty easily.

 

Moncler IPO a Go - Moncler SpA on Monday was given the go ahead for its listing on the Milan Stock Exchange.In April, the hot outerwear brand filed documents to go public, heading for a float by the end of June. Moncler’s filing did not disclose the amount of shares it plans to list, although sources have said it was looking at floating up to 50 percent of the company. They estimated the float would value the group at about 1.1 billion euros, or $1.5 billion at current exchange. Consob, Italy’s stock market watchdog, is expected to also approve the listing this week, followed by a two-week road show starting next week, according to sources. In addition to the Moncler brand, the Moncler Group includes high-end sportswear labels Henry Cotton’s, Marina Yachting and Coast + Weber + Ahaus, and it holds the license for Cerruti. The private equity fund Carlyle Group owns 48 percent of Moncler. Remo Ruffini, the firm’s president and creative director, who acquired Moncler in 2003, views the IPO as a chance for the company to invest in further international expansion, both via wholesale and, increasingly, its own retail stores. While Prada has chosen Hong Kong for its IPO, Marco De Benedetti, managing director of Carlyle, told WWD in February that as a European company, Moncler was going to “maintain its roots, and list where these roots and values are.” <WWD>

Hedgeye Retail’s Take: It looks like Moncler’s store growth from four to over thirty in less than three years under Carlyle is just the beginning. Moreover, with only three stores now in the U.S. (two of which were added just last year), and company’s interest in acquiring additional brands for the portfolio, expect greater brand proliferation in the U.S. just in time for holiday shopping.

 

Gucci Enters JV With Supplier - Gucci has established a joint venture with leather goods firm Arte & Pelle, one of its historical suppliers. Gucci holds a 51 percent stake in the new company, called GARPE – Gucci Arte & Pelle. Virgilio Brogi, founder and director of Arte & Pelle, retains the remaining shares. The company has been working for Gucci since 1995. Under Di Marco’s management, Gucci has been touting craftsmanship and Made in Italy quality. Founded in 1978, Arte & Pelle, with sales of 8 million euros, or $11.2 million at current exchange, is focused on the production of handbags. It counts 40 direct employees and a network of 18 suppliers, for a total of 120 people working indirectly for the company. This is the third such venture for Gucci. In November, the company joined forces with Pelletteria Annalisa, creating a new company called GPA, Gucci Pelletteria Annalisa. In this case, too, Gucci owns 51 percent of the holding. Pelletteria Annalisa is also located in Tuscany, in the town of Figline Valdarno, near Florence, and produces belts, bags and luggage. <WWD>

Hedgeye Retail’s Take: This is a continuation of the trend we’re seeing whereby high-end/luxury companies are going more and more vertical. It was the front end first, now it is increasingly on the back end.

 

Executive Departures at Li-Ning - Chinese sportwear brand Li Ning is currently in face of management transition as three key executives have recently resigned.  "In the recent two months, these three staff resigned from their respective positions with the group to pursue their personal interests," the company said in a brief statement. "Their departure constitutes normal changes to the group's management staff."  The three personnel who have left are chief operating officer Guo Jian-Xin, chief marketing officer Fang Shih-Wei and e-commerce manager Lin Li. "All the strategies and operations that the group is carrying out will not be affected by the departure of individual employees," Li Ning added. "In addition, the group has a rich talent pool and a suitable organizational structure to meet the Group's business development needs. The management will continue to focus on the group's future developments and the implementation of strategies to improve the group's business performances." <FashionNetAsia>

Hedgeye Retail’s Take: Let’s be clear, the resignation of the COO and CMO are not in the course of normal business. Nonetheless, investors in the US largely do not recognize the threat that Li Ning perennially poses in Asia, Europe and even the US. Did anyone see Nadal’s match yesterday vs. Ljubicic at the French Open? Google the guy for an image or two. Nadal was all Nike-d out – but consumers have grown to expect this. Incrementally, they probably did not get much off of their marketing dollars. But Li-Ning (even though their player lost) got the unexpected exposure. This is similar to the trend we see with Under Armour in the US.

 

Social Commerce Increasingly Important to Retailers - The best way to market to the masses was through television. Then cable fragmented the TV audience, and then the Internet lured eyeballs away from TV sets. Now social media stands as one of the few places to reach a wide swath of consumers. That new marketing reality runs through the “2011 Social Commerce Study” released today by Shop.org, the online retail division of the National Retail Federation, and web measurement firm comScore Inc. The report finds that 77% of online adults use social networks and 54% of those consumers have followed a retailer on Facebook, Twitter or a retailer’s blog. The average consumer that has followed a retailer online tracks 6.3 of them. According to the report, consumers follow brands to find discounts (58%), learn about products (49%), read customer reviews (34%) and share information with other customers (30%). <internetretailer>

Hedgeye Retail’s Take: With more half of all customers engaged in following retailers on social networks, this study serves as yet another reminder for retailers still in the process of establishing a social commerce strategy that share is being lost by the day to more savvy competitors. Perhaps the most notable statistic from the study is that regardless of source (Facebook, Twitter, or Retail Blog), over 50% of shoppers click through to a retailer’s website from origination in the social network.

 

Mobile Check-in Usage Growing - Checking in to location-based services on a mobile phone is still not a mainstream activity, but adoption is increasing, especially among smartphone users—those most likely to use the apps that check-ins are typically tied to. According to comScore, 7.1% of all mobile users and 17.6% of smartphone users accessed check-in services in March 2011. Users of check-in services were more likely than the overall smartphone population to be female, under 35 years old and full-time students.  Female smartphone users’ adoption of the check-in is somewhat surprising in light of research on mobile privacy and security, which has sometimes found women are more sensitive than men to disclosing personal information like their location. Smartphone users who check in to location-based apps also indexed higher for participation in every other mobile activity studied by comScore. From overall browser and application usage to ad recall and mobile shopping activities, check-in service users are out in front of the general smartphone population. Check-in service users, for example, are 86% more likely to access mobile travel services than average smartphone users. Currently, check-ins still skew young, with only a third of current users ages 35 and older, but if app developers and their marketing partners continue to reassure users about the risks and rewards of participation that landscape could change. <emarketer>

Hedgeye Retail’s Take: At 7.1% of all mobile users, mobile check-in service usage remains in its infancy due in part to privacy concerns. Interestingly, one-third of users accessed online retail with the service who also proved to be 87% more likely to do so than smartphone users alone. These are compelling figures, but again off a base of only 7% of all mobile users, we suspect most retailers are still focused primarily on the basic blocking and tackling aspects of ramping e-commerce efforts.  

 

R3: FW M&A, Hermes, Social Commerce, & Li-Ning  - R3 5 31 11

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP

Case-Shiller home prices officially double-dipped in the March data, reported this morning.  This was not a great surprise considering we saw the Corelogic HPI double-dip in January.  The Case-Shiller 20-city NSA series fell -0.77% in March versus February and -3.6% versus a year ago.  The MoM change was slightly better than February, which is to be expected given the seasonal pattern - home prices are generally stronger in the spring (March through June).

 

13 of the 20 cities hit new lows in March.  Home prices have been strongest in the highest-value markets, particularly D.C., New York, and Los Angeles.  

 

We've noted for several months an increasing divergence between the Corelogic HPI and the Case-Shiller HPI.  These series are not identical in scope and methodology, but the differences between them don't immediately explain the growing gap.  

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - all 3 yoy

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - all 3 mom

 

Based on our demand model, we expect 18% downside in home prices in 2011 versus 2010.

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - scatter

 

The charts below show the MoM and YoY change in Case-Shiller by city on an NSA basis.  18 of the 20 cities (all except D.C. and Seattle) moved lower MoM.  Looking at the YoY, D.C. was the only gainer.  

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - mom by city

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - yoy by city

 

We show below that the higher-priced cities are also seeing better performance MoM and YoY. 

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - mom scatter

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - yoy scatter

 

The chart below shows the Case-Shiller 20-city NSA index with YoY and MoM changes. 

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - nsa

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - c s yoy

 

As noted, home prices have a seasonal component, showing stronger performance in April, May, and June.

 

CASE-SHILLER MARCH HOME PRICES OFFICIALLY DOUBLE-DIP - c s mom

 

Joshua Steiner, CFA

 

Allison Kaptur


TALES OF THE TAPE: TXRH, CPKI, WEN, RUTH, CHUX

Notable news items and price action from the restaurant space including our fundamental view on select names.

  • TXRH was raised to “Buy” from “Neutral” at SunTrust Robinson.  The 12-month price target is $21 per share.
  • CPKI signed a deal with San Francisco-based Golden Gate Capital.  Golden Gate will acquire the company for approximately $470 million, or $18.50 per share, in cash.
  • WEN was upgraded by S&P to “stable”.
  • Coffee drinkers are going to have to get used to higher coffee prices, if recent production numbers from Columbia are anything to go by.  The Colombian National Coffee Growers Federation’s Chief Executive Officer Luis Munoz said that demand will outstrip supply next year, keeping prices in the $2-3 per pound range for the next twelve months.
  • RUTH and CHUX gained on accelerating volume.

TALES OF THE TAPE: TXRH, CPKI, WEN, RUTH, CHUX - stocks 531

 

Howard Penney

Managing Director


WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB

Margin Debt Edges Closer to Prior Pre-Crash Highs

We are now publishing NYSE Margin Debt every month when it’s released.  Last week we got April data (as of month-end). This chart shows the S&P 500, inflation adjusted back to 1997, along with the inflation-adjusted level of margin debt (expressed as standard deviations from the long-term mean).  As the chart demonstrates, higher levels of margin debt are associated with increased risk in the equity market.  Our analysis shows that more than 1.5 standard deviations above the average level is the point where things start to get dangerous.  Currently, we are very close to that level – April margin debt hit 1.49 standard deviations above the average.

 

One limitation of this series is that it is reported on a lag.  The chart shows data through April.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - margin debt

 

This week's notable callouts include domestic and European financials CDS increasing.


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 11 improved / 4 out of 11 worsened / 5 of 11 unchanged
  • Intermediate-term (MoM): Negative / 3 of 11 improved / 5 of 11 worsened / 3 of 11 unchanged
  • Long-term (150 DMA): Neutral / 4 of 11 improved / 4 of 11 worsened / 3 of 11 unchanged

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - summary

 

1. US Financials CDS Monitor – Swaps widened across domestic financials, widening for 26 of the 28 reference entities and tightening for 2. 

Widened the most vs last week: GS, MET, PRU

Tightened the most vs last week/widened the least: JPM, PMI, MBI

Widened the most vs last month: GS, PMI, RDN

Tightened the most vs last month/widened the least: ACE, TRV, GNW

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe widened last week.  34 of the 38 swaps were wider and only four tightened.   

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - euro cds

 

3. European Sovereign CDS – European sovereign swaps rose last week, climbing 32 bps on average.  Greek CDS led the way higher, rising 7.4% before coming in somewhat early this week. 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.14 versus 7.12 the prior week. A data error or methodology change appears to be the cause of the step function in the Bloomberg series.  We are awaiting clarification on this shift.  

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index slid slightly again last week, ending the week at 1614 versus 1618 the prior week.   

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - lev loan

 

6. TED Spread Monitor – The TED spread continued to decline off its high last week, ending the week at 21.3 versus 21.7 the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index continued to bounce along the bottom, falling 1 point versus the prior week. 

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 15 bps versus the prior Friday.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1.  Last week spreads were flat at 101 vs 104 the prior week. 

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Early in the year, Australian floods and oversupply pressured the Index, driving it down 30% before bouncing off the lows.  Last week the series gained 125 points.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - Baltic Dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened 4 bps to 259 bps. 

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  0.1% upside to TRADE resistance, 2.2% downside to TRADE support.

 

WEEKLY FINANCIALS RISK MONITOR: MARGIN DEBT CONTINUES TO CLIMB - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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