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ECB Notes: Message is economic uncertainty at the global level

Below we highlight some of the major call-outs from ECB President Jean-Claude Trichet’s press conference following the Bank’s unanimous decision to leave the ECB’s Main refinancing rate UNCH at 1.50%. In short, he warned of the uncertain global outlook on the horizon, with risks weighing to the downside, including revisions to GDP. In typical Trichet form, he was tight-lipped about future interest rate moves, yet should the global conditions he presented materialize, logic would follow that a cut may be warranted. And we’re calling for global growth slowing!

 

GDP: according to ECB staff projections, which the Governing Council reviews in making its monetary policy decisions, annual  Eurozone GDP for 2011 was downwardly revised to 1.4% - 1.8% vs. the previous forecast band of 1.5% - 2.3%.  2012 annual GDP was also revised down to 0.4% - 2%.

 

Inflation: as measured by CPI, inflation is expected at 2.5% - 2.7% (Y/Y) for 2011 and 1.2% - 2.2% in 2012, based on ECB staff projections.  [or UNCH vs previous estimate for 2011 and narrower for 2012 projection].  With the mandate of 2% CPI as the target rate, Trichet remained confident that this level will be achieved in 2012, while CPI should remain elevated in 2011. 

 

M3: Trends in money growth have stabilized over the last months, with expansion at a modest pace.

 

Economic Analysis and Risks: Trichet cites the Japanese earthquake; dampening factors of slowing global growth; elevated energy prices; deteriorating global equity markets and business confidence; and remaining tensions due to Europe’s sovereign debt contagion as key factors weigh on the Council’s monetary policy decision.

 

QA: As is typical, the questions posed at Trichet in the press conference were far more interesting than his prepared remarks for they cut to the heart of many issues plaguing the region, yet little response was given.


On fiscal policy: as usual, Trichet had no comment on fiscal policy, returning to the Bank’s sole mandate of price stability. He mentioned the need of countries issuing fiscal consolidation packages to front-load them. He had no specific comments on the size and scope of Italy’s austerity package, which passed a confidence vote in the Senate yesterday and must clear the lower house of Parliament in the coming days.

 

On Liquidity Measures: Trichet stressed the fixed rate non-standard measures of the ECB with full allotment on the 1w, 1m, and 3m will be extended into the end of Q4. Here he defiantly states that there are no liquidity issues for Euro area banks on the whole. Among further comments in which he insistence on the health of Euroarea banks, Trichet is in opposition  to IMF head Christine Lagarde who recently said that Euro area banks are undercapitalized and a statement from Deutsche Bank’s Josef Ackermann that the current climate “reminds one of the autumn of 2008”.

 

On SMP facility: Trichet did not comment on the future size and scope of the Bank’s bond purchasing program, which resumed in early August. He reiterated that the Bank will provide weekly totals of its secondary buying, which has included:  €22B for the week ended Aug. 12; €14.3 for 8/19; €5.3B for 8/26; and €13.3B for 9/2.

 

In his closing remarks Trichet noted his respect for the founding principles of the Stability and Growth Pact. In short, it’s clear how politically motivated Trichet is to keep the Eurozone intact, including support of the common currency. Our call remains that should Germany not give the necessary backing to the EFSF, or should a unanimous vote to pass the facility not be met (the timing of which should be late September and early October), the ECB, against its mandate, will likely have to step in to directly and play a larger role to support the sovereign and banking issues across the region. Should this be the case, we could see massive inflation risks in the common currency.

 

For now, we are not invested in Europe, having covered our short position in the UK (EWU) on 9/6. We continue to see slowing fundamentals not only in the periphery but in the core as well. Additionally, France’s AAA credit rating hangs in the balance. The EUR-USD fell sub $1.39 during Trichet’s remarks and is settling just north of $1.40 intraday. Our immediate term trade levels on the cross are $1.39-1.43, with a broken intermediate term TREND level of $1.43.

 

In other news, the BOE left its main interest rate unchanged at 0.50% and kept its asset purchasing program unchanged at 200B GBP. We continue to highlight the nation’s sticky stagflation, which should dampen its economic outlook over the coming quarters.  While the BOE too could cut rates, the ECB has more room to play with on the downside given its interest rate differential, which is positive on the margin.

 

Matthew Hedrick

Senior Analyst

 

ECB Notes: Message is economic uncertainty at the global level - B. ECB


MPEL: TRADE UPDATE

Today, Keith bought MPEL in the Hedgeye Virtual Portfolio.  The Street is still too low on 3Q and the stock is as cheap as it was at $4.

 

 

Keith bought MPEL in the Virtual Portfolio at $12.70.  According to his model, MPEL has rock solid support at $12.49 (TRADE) and $11.90 (TREND).  Fundamentally, MPEL continues to be a favorite name of ours heading into 3Q earnings for several reasons: 1) Street is ~20-25% too low on 3Q EBITDA; 2) among the Macau names, it is the cheapest (under 8x - same forward multiple as when it was a $4 stock) and has the least downside to trough March 2009 levels; 3) Besides Galaxy, which is feeding off of the opening of Galaxy Macau, it is the only operator to have gained revenue market share since Q2 end; 4) It has 100% exposure to Macau, which is experiencing significant growth.  

 

MPEL: TRADE UPDATE - mpel


Bullish?: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU)

 

Into month end (August 30th), I wrote a note saying I was moving the Hedgeye Portfolio to net short (more SHORTS than LONGS) for the 1st time since June 23rd. I was looking for a correction of the August month-end markup.

 

After seeing the correction in the first 6 days of the September, I’ve now covered my Financials (XLF) and Housing (ITB) short positions and moved the Hedgeye Portfolio to one of its longest (net) positions of the year (13 LONGS, 7 SHORTS).

 

As the math in my process changes, I do. I’m not saying that the SP500 is bullish from an intermediate (TREND) or long-term (TAIL) perspective. I am, however, saying explicitly that the immediate-term TRADE signals here are bullish.

 

Here are the lines that matter: 

  1. TRADE support = 1158-1182 is the range I am highlighting in the chart (attached); those are higher-lows versus the YTD closing low (1119)
  2. TRADE resistance = 1230
  3. TAIL resistance = 1263 

So I have been covering and buying again this morning as the probability has heightened that we see 1230 in the SP500 on the next leg up. Manage your risk around the 1158-1230 range proactively.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish?: SP500 Levels, Refreshed - SPX


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

THE HBM: GMCR, SBUX, MCD, DRI

Notable macro data points, news items, and price action pertaining to the restaurant space.

 

Macro

 

Consumer

 

Initial jobless claims came in at 414k for the week ended September 3rd versus consensus 405k and 412k the week prior.  The chart below shows rolling claims over the past few years.

 

THE HBM: GMCR, SBUX, MCD, DRI - initial claims 98

 

 

Commodities

 

The coffee crop in Brazil may rise to 62 million bags in the 2012-13 season as trees enter the high-yielding half of the two-year cycle, according to Volcafe.

 

 

Subsectors

 

THE HBM: GMCR, SBUX, MCD, DRI - subsectors fbr

 

 

QUICK SERVICE

  • GMCR has been rated “Overweight” with a $117 price target by Piper Jaffray.
  • SBUX’s plans for growth in Asia are not limited to China and increasing Via penetration.  The company also plans to double its store base in Korea.
  • MCD’s remodels in Canada, which we wrote about yesterday, are to include plasma TV’s, fireplaces and completely remodeled exteriors.

 

CASUAL DINING

  • DRI was raised to “Outperform” at Wells Fargo.

 

THE HBM: GMCR, SBUX, MCD, DRI - stocks 98

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.

 

Initial Claims Rise 5k

Initial jobless claims rose 5k to 414k last week (+2k after the revision to last week's data).  With this week's data point, there is now a clear upward trend in place in rolling claims.  The Labor Department noted that there was little effect on claims from the hurricane.  However, because of the Labor Day holiday, data from several states including California was estimated rather than actual.  This means that revisions next week are likely to be larger than normal, although the revision could go either direction.  

 

INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH - rolling

 

INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH - raaw

 

INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH - sp

 

10-year Declines Put Enormous Pressure on Margins

We presented our Black Book yesterday that analyzes the impact of the current rate environment on NIM.  To summarize, the impact is profound, wiping out substantial swaths of interest income at all the moneycenter banks.  (Contact us if you haven't seen this presentation.)  This week's price action in the 10-yr remained negative for the banks.

 

INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH - 2 10 spread

 

INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH - spreads QoQ

 

Subsector Performance Chart

 

The chart below shows the performance of financial stocks by subsector.

 

INITIAL CLAIMS RISE AHEAD OF OBAMA'S SPEECH - perf

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Having trouble viewing the charts in this email?  Please click the link below to view in your browser.  


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 8, 2011

 

As we look at today’s set up for the S&P 500, the range is 59 points or -4.22% downside to 1148 and 0.70% upside to 1207.

 

 

SECTOR AND GLOBAL PERFORMANCE

 

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THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 2420 (-2155)
  • VOLUME: NYSE 954.50 (-15.15%)
  • VIX:  33.38 -9.78% YTD PERFORMANCE: +88.1%
  • SPX PUT/CALL RATIO: 1.99 from 1.85

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 32.15
  • 3-MONTH T-BILL YIELD: 0.0153
  • 10-Year: 2.05 from 1.98
  • YIELD CURVE: 1.84 from 1.77

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Trade balance, est. (-51.0b), prior (-53.1b)
  • 8:30 a.m.: Jobless claims, est. 405k, prior 409k
  • 9 a.m.: Corelogic June foreclosures
  • 9:45 a.m.: Bloomberg consumer comfort, prior (-49.1)
  • 10:30 a.m.: EIA Natural Gas storage change
  • 11 a.m.: DoE inventories
  • 1:30 p.m.: Fed’s Bernanke speaks to economics club in Minn.
  • 3 p.m.: Consumer credit, est. $6b, prior (-$15.5b)

 

WHAT TO WATCH:

  • Fed Chairman Ben Bernanke scheduled to speak in Minnesota today on the economic outlook, 1:30 p.m. ET
  • Monsanto and 10 other cos. may win challenge against French measures banning use of strain of genetically modified corn if govt. can’t show fulfilled correct procedures, EU’s highest court said earlier
  • Congress’s deficit-reduction supercommittee holds first meeting today in effort to find $1.5t in cuts
  • JNJ/Bayer: FDA advisory committee on Xarelto (rivaroxaban)
  • Yahoo board may hire advisers within two weeks, with Allen & Co., JPMorgan and UBS among those likely to be chosen: WSJ
  • HTC surged to highest in 3 weeks in Taipei after filing infringement claims against Apple yesterday, using patents bought from Google last week
  • Labor Dept. said to be investigating pay practices of some home building cos. including Pulte, Lennar, D.R. Horton, KB Home: WSJ
  • Ranbaxy Laboratories headed for biggest close in 3 months after parent Daiichi Sankyo said aims to start selling generic version of Pfizer’s cholesterol pill Lipitor on schedule
  • ACE agreed to buy Penn Millers for $20.50 cash per share
  • NFL season begins tonight
  • No IPOs expected to price today

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Gold Gains in New York as Two-Day Slump From Record Lures Buyers
  • Monsanto May Win Appeal of French GM Maize Ban, EU Court Says
  • Cotton Climbs Most in Two Months as China May Build Stockpiles
  • Coffee Falls as Slowing Economies May Dent Demand; Cocoa Drops
  • Copper Declines 0.5% to $9,044 a Ton on London Metal Exchange
  • Corn May Rise on Speculation U.S. Harvest Will Miss Estimates
  • Tropical Storm Nate Forecast to Strengthen in Mexican Waters
  • Corn Imports by China to Surge, Tightening Global Supply
  • South Korea to List Exchange-Traded Fund for Physical Copper
  • Hayward to Spark Oil Fight in Iraqi ‘Last Great Frontier’
  • Toyota Boosts Japan Ship Lines Amid Slump: Freight Markets
  • Sweet Oil Filling Libya Gap to Stay Near Record: Energy Markets

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director

 

 



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%
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