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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - August 3, 2011

 

Fear sells!

 

And while I don’t think anyone who really understands what we do thinks we sell fear, I can tell you yesterday was the busiest day of what we call “new subscriber demand” – probably a contrarian indicator.  As we look at today’s set up for the S&P 500, the range is 4 points or -0.16% downside to 1252 and 0.16% upside to 1256.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 83

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

 

“on a day like yesterday, I usually start hearing some of the most qualitative things I hear all year – “this guy blowing up… volume/OIS doing that… look at this” – yesterday, was nothing like the usual storytelling – more like oh my god” - KM

 

  • ADVANCE/DECLINE LINE: -1750 (-1945)  
  • VOLUME: NYSE 1252.18 (+12.77%)
  • VIX:  24.79 +4.78% YTD PERFORMANCE: +39.66put%
  • SPX PUT/CALL RATIO: 2.10 from 2.41 (-12.97%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 21.87
  • 3-MONTH T-BILL YIELD: 0.06% -0.04%
  • 10-Year: 2.66 from 2.77    
  • YIELD CURVE: 2.33 from 2.39

MACRO DATA POINTS:

  • 7 a.m.: MBA Mortgage Applications, prior (-5.0%)
  • 7:30 a.m.: Challenger Job Cuts, prior 5.3%
  • 8:15 a.m.: ADP Employment Change, est. 100k, prior 157k
  • 10 a.m.: ISM Non-Manf. Composite, est. 53.5, prior 53.3
  • 10 a.m.: Factory Orders, est. (-0.8%), prior 0.8%
  • 10:30 a.m.: DoE inventories

WHAT TO WATCH:

  • Moody’s, Fitch affirm U.S. AAA ratings while warning of potential downgrades
  • Swiss central bank unexpectedly cut interest rates in effort to stem surge in its “massively overvalued” currency
  • Italian PM Berlusconi will address country, Senate in attempt to shore up confidence as bond yields hit euro-era records
  • HEDGEYE LEVELS – away from Venezuela and Russia, there is not 1 global equity market that scores bullish on both TRADE and TREND on the COUNTRY style factor in the Hedgeye global macro model; that means you need to tighten up your net exposure on rallies

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Commodities Fall for a Sixth Day on Concerns Economy May Slow
  • Corn, Wheat Fall as Slowing U.S. Rebound May Cut Into Demand
  • Coffee Rises for Fourth Day on Delayed Exports; Raw Sugar Gains
  • China Soy Demand to Gain on Higher Hog Numbers, Boosting Imports
  • Copper Declines 0.6% to $9,620 a Ton on London Metal Exchange
  • Paulson, BlackRock, UBS Lead London Mining Analyst Hiring Spree
  • Rubber Rallies as Much as 2% as Rain in Thailand May Cut Supply
  • Egypt Seeks to Broaden Wheat Imports as Russian Prices Climb
  • Iron Ore Swaps, Aided by Deutsche Bank, Surge Fourfold to Record
  • Anchor Ship May Double Fleet to 50 on China’s Iron-Ore Demand
  • Guangxi Steelmakers Halt Output on Power Shortage, Xinhua Says
  • Diamond Jewelry Demand in India May Slow After Gem Prices Surge
  • Global Gold Hedges Increased 4.1% in First Quarter, GFMS Says
  • FAO Pares Record Rice Production Forecast for 2011 on U.S.n

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: learn most on "recovery" days in a bear market; today’s shows the squeeze tapes up (Italy) and the pseudo quality (Germany) down = bad
  • July final Services PMI - France 54.2 vs prelim 54.2; Germany 52.9 vs prelim 52.9; Eurozone 51.6 vs prelim 51.4; UK Jul Services PMI 55.4 vs consensus 53.2, prior 53.9
  • UK Retail prices rose 2.8% YoY following a 2.9% in June according to BRC and Nielsen Co.  On the month, prices fell 0.2% after increasing 0.5% in June.

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: CHINA – closed down a whole 3 basis points in the face of a sea of global equity selling; this is interesting not only because it registers as a positive divergence, but doesn’t tell you the world’s entire demand construct is imploding – at least not today
  • Australian retail sales unexpectedly declined in June for a second straight month  by 0.1%

 

 THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director


THE M3: FERRY TAX REMOVED; CHINA TAX

The Macau Metro Monitor, August 3, 2011

 

 

CHEAPER OUTBOUND FERRY SERVICES Macau Daily Times

According to Macau's Executive Council, the MOP 19 ferry departure tax charged to passengers will be removed to help attract visitors to the city.  The council’s spokesperson Leong Heng Teng said the change will come into effect 30 days after the administrative regulation is promulgated.

 

MACAU RESIDENTS, FIRMS TO TAKE CHINA TAX HIT Macau Daily Times

Local residents and companies working in mainland China will have to pay the new social security contribution that is expected to come into effect in early 2012.  Moreover, there is no sign the MSAR Government is seeking a deal with mainland China to give exemption to local residents and companies.  The draft Social Insurance law is currently waiting for State Council approval.

 



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PEET – DELIVERING RESULTS TIME AND AGAIN

Peet’s reported strong results of Q2 EPS $0.38 vs consensus of $0.32; revenues also beat expectations of $90.6M and consensus of $88.7M.  PEET has been a favorite name of mine since late 2010.

 

The following are my top ten takeaways from the quarter.

  1. The company raised full year EPS guidance "toward the higher end" of prior $1.43-1.50 range versus consensus of $1.46 and full-year revenues growth of +10-12% versus prior guidance +8-10%.
  2.  Peet ‘s is rolling out a new product entry into the largest segment of the specialty coffee category in grocery stores with the debut of two new medium-roast coffees (1/3 of sales in the category) in ground and whole bean form: Peet’s Café Solano and Peet’s Café Domingo.  It is expected that the new line will be available in about 80% of the company’s existing store base before the end of this calendar year.
  3. Management does not expect cannibalization from the new products; new products will be sold at the same margin.
  4. Grocery grew 30% in Q2, lapping 29% growth in Q2 last year and up from 22% growth in 1Q11 and is now 70% bigger than it was two years ago.
  5. Grocery to accelerate growth in 2H11 on the back of the new products.
  6. The company will be selling product in 1,000 new stores in 2H. 
  7. Significant expansion in the TGT stores; management is expecting to double the number of target stores distributing Peet's Coffee to about 900 by the end of 4Q.
  8. Gross margins declined -290bps in the quarter on 37% higher coffee costs in 2Q.  Coffee inflation for the year is projected to be +40% so gross margins will be down 200-300 basis points versus the second quarter in 3Q and 4Q.
  9. There was no significant change in pricing quarter to quarter.  In 2Q, there was a full quarter impact of the grocery price increase taken in February 2011.
  10. PEET is one of the best small cap growth stories in the restaurant space.  Valuation is rich but there is a premium for well run companies that are seeing 8-10% secular growth. 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


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