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Trade Update: Covering France (EWQ)

Keith covered France via the eft EWQ in the Hedgeye Virtual Portfolio today.  Keith is trading risk around the position, covering it on red days, and shorting it on green days.  We remain bearish on French stocks for the intermediate term TREND, with the CAC broken on TREND at 3404 (see chart below). 

 

Trade Update: Covering France (EWQ)  - 1. cac

 

We remain bearish on France over the intermediate term due to:

  • Pending downgrade of France’s AAA Sovereign Credit rating in T-3 weeks
  • Public debt rising through the 90% (as a % of GDP) next year
  • Slowing growth (below the government’s 1% 2012 projection) alongside Austerity’s Bite
  • Banking risk, including any difficulties for its major banks (BNP, Credit Agricole, SocGen) to raise capital to the 9% Core Tier 1 ratio, and sovereign risk as France is the largest holder of Italian public debt and private debt, according to BIS
  • EFSF and IMF are undercapitalized to materially aid any potential sovereign and banking bailout needs of France
  • High unemployment rate of 9.8% (versus 7% in Germany); 22.8% among the French youth
  • Smaller export profile (versus Germany), so there’s less benefit to grow via exports 

Matthew Hedrick

Senior Analyst


European Banking Monitor

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"

 

If you'd like to receive the work of the Financials team or request a trial please email sales@hedgeye.com.

 

As Josh points out in his commentary below, the Euribor-OIS spread and the ECB liquidity deposit made new highs in the last week.  This demonstrates that risk in the system has not abated in the slightest. Bank swaps were wider week-over-week and the SMP drastically reduced its secondary bond purchases w/w. 

 

 

Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk.  The Euribor-OIS spread tightened by 3 bps to 96 bps versus last week’s print of 99 bps.

 

European Banking Monitor - 1. euribor

 

 

ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.

 

European Banking Monitor - 2. ECB

 

 

European Financials CDS Monitor – Bank swaps were wider in Europe last week for 25 of the 40 reference entities. The  median widening was 14.4%.

 

European Banking Monitor - 3. banks

 

 

Security Market Program – The ECB's secondary sovereign bond purchasing program bought 635 Million EUR in the week ended 12/9 (versus 3.7 Billion EUR in the previous week) to take the total program to 207.5 Billion EUR.

 

European Banking Monitor - 4. smp

 

 

Matthew Hedrick

Senior Analyst

 


Short Covering Opportunity: SP500 Levels, Refreshed

POSITION: Long Healthcare (XLV), Long Consumer Discretionary (XLY)

 

The range we’ve been giving you for the last few weeks continues to hold. If 1232 breaks, that will change – and then, it will probably change again. Embrace Uncertainty. It’s not going away.

 

Across all 3 risk management durations in my model, here are the 3 that matter most right now: 

  1. Long-term TAIL resistance intact up at 1270
  2. Immediate-term TRADE resistance developing at 1248
  3. Immediate-term TRADE support = 1232 

Since the US Dollar Index is immediate-term TRADE overbought (within its Bullish Formation) today, I think the highest probability scenario is that my 1232 holds and we see a re-test on the upside of 1248. The more obvious observation is that it’s much less likely now that the SP500 gets back above its lower-long-term-high from October (1281) before year end.

 

Net net, today’s call is a Short Covering Opportunity. On the long side, we like Consumption stocks (Healthcare and Consumer) as a way to play Strong Dollar – not the Financials, Basic Materials, or Energy Sectors.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Short Covering Opportunity: SP500 Levels, Refreshed - SPX


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%

SOLID WEEK IN MACAU

December projection of HK$21.5-22.5 billion (+17-23% YoY growth)

 

 

 

Table revenue per day last week climbed to HK$719 million, up from HK$668 million in the first 4 days of December, and in-line with November.  Our full month projection is HK$21.5-22.5 billion, which would represent YoY growth of 17-23%.

 

There were big market share shifts from last week which is understandable since last week contained only 4 days in December.  Surprisingly, LVS lost 210bps from last week but still almost 200bps over its recent trend.  Clearly, the new junket relationships at Four Seasons/Venetian are paying top line dividends.  SJM, WYNN, and MPEL moved up toward trend after unsustainably low share in the first 4 days.  However, WYNN remains well below its post Galaxy Macau share.  Interestingly, all of the operators are fairly close to the post Galaxy averages thus far in December with the exception of LVS and WYNN – LVS up and WYNN down, both approximately 200bps.

 

SOLID WEEK IN MACAU - macau111


THE HBM: YUM, MCD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Comments from CEO Keith McCullough

 

Europe failed to deliver on a consensus failure to understand what they could deliver. Back to reality.

  1. INDIA – all the Growth Slowing on the East side of the world continues - China (down another -1% to a new low last night, down -18.4% YTD) and India put up their worst Industrial Production print in 28 months last night (down -5.1% y/y) = Sensex dropped another -2.2% (crashing, down -23% YTD)
  2. EURO – get the USD right, you’ll get the big beta moves generally right and that’s what’s shaking out there this morning w/ the EUR/USD testing 1.32 again. All European stock markets making consecutive lower-highs and now testing immediate-term TRADE lines of support (the only lines left) of 5845, 3071, and 15102 on the DAX, CAC, and MIB, respectively.
  3. COPPER – the Doctor is ill this morning, trading down -2.7% moving back into a Bearish Formation as Gold fails at $1743 TREND resistance ($1683/oz last) and Brent Oil’s TAIL remains broken ($110.11/barrel) – all this started breaking down again on Thursday morning after the ECB press conf call where it was clear that there would be no ECB backstop (bond buying).

Interconnectedness should insulate the risk management of ranges. We like US Consumption stocks (Healthcare and Consumer Discretionary) as the USD strengthens and Deflating The Inflation becomes more and more obvious.

 

KM

 

SUBSECTOR PERFORMANCE

 

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QUICK SERVICE

 

YUM: Pizza Hut acquired almost 50 of its Southwest Ohio locations from a local franchisee.  Details of the transaction have not been disclosed. 

MCD:  McDonald’s was reiterated “Buy” at UBS and the PT was raised to $106 from $98.

 

THE HBM: YUM, MCD - stocks 1212

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 12, 2011

 

Back to reality! Europe failed to deliver on a consensus failure to understand what they could deliver. Interconnectedness should insulate the risk management of ranges. We like US Consumption stocks (Healthcare and Consumer Discretionary) as the USD strengthens and Deflating The Inflation becomes more and more obvious.   As we look at today’s set up for the S&P 500, the range is 37 points or -1.77% downside to 1233 and 1.18% upside to 1270. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 1212

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE:  -2150 (+4348) 
  • VOLUME: NYSE 819.22 (-11.96%)
  • VIX:  26.38 -13.76% YTD PERFORMANCE: +48.62%
  • SPX PUT/CALL RATIO: 1.61 from 1.23 (+30.30%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 53.67
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.07 from 1.99   
  • YIELD CURVE: 1.85 from 1.77

 

GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • Japan November corporate goods price index +1.7% y/y vs cons +1.5%. November machine tool orders +15.9% y/y.
  • Australia October trade balance A$1.60B vs cons A$1.90B.
  • Germany Nov wholesale price index +4.9% y/y vs consensus +4.2%, prior +5.0%
  • 11:30am: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 2pm: Monthly budget statement, est. $139b (prior -$150.4b)

WHAT TO WATCH:

 

  • President Obama meets with Iraqi PM Nuri al-Maliki at White House
  •  U of Iowa holds news conference on results of latest Hawkeye Poll of likely Republican caucus-goers, 10am
  • U.S. Deputy Secy of Energy Daniel B. Poneman travels to Taipei
  • U.S. online holiday spending up 15% to $24.6b Y/y: ComScore
  • Google Chairman Eric Schmidt speaks at Economic Club of Washington, 12:30pm
  • Lehman said to prepare $1.3b bid for Archstone stake

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COPPER – the Doctor is ill this morning, trading down -2.7% moving back into a Bearish Formation as Gold fails at $1743 TREND resistance ($1683/oz last) and Brent Oil’s TAIL remains broken ($110.11/barrel) – all this started breaking down again on Thursday morning after the ECB press conf call where it was clear that there would be no ECB backstop (bond buying).

 

  • China May Add to Reserve-Ratio Cuts as Europe Exports Weaken
  • Gold Drops to Two-Week Low in London as Dollar Gain Cuts Demand
  • Oil Falls on Europe’s Debt Crisis as Moody’s Readies to Review
  • Speculators Miss Oil Drop on European Debt Woes: Energy Markets
  • Funds Cut Bets on Rising Food Costs to 27-Month Low: Commodities
  • Whitehaven Agrees to Buy Tinkler Assets for A$2.72 Billion
  • Copper Drops on Rising China Stockpiles; Europe Crisis Concern
  • South African Platinum Drop ‘Unprecedented,’ JPMorgan Says
  • Indian Mines Bill Before Parliament Seeks to Share Profits
  • Peru to Hire Consultants to Review Stalled Newmont Gold Project
  • Palm Oil Drops Most in Two Months on Higher Global Soy Reserves
  • Copper Declines on Speculation Chinese Demand May Weaken
  • Wheat Drops as Global Harvest May Reach Record, Boosting Supply
  • China, India Vow Pollution Cuts in Biggest Climate Move
  • Rubber Growers May Back Physical Market to Set Up Benchmark
  • U.K. Gold Hallmarking Slumps as Retailers, Consumers Cut Demand
  • China’s November Foreign Trade by Commodity (Table)
  • Goldman Sachs Said to Back Former Barclays Trader’s Hedge Fund
  • DuPont Cuts Profit Forecast on Weakening Electronics Demand

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

CURRENCIES

 

EURO – get the USD right, you’ll get the big beta moves generally right and that’s what’s shaking out there this morning with the EUR/USD testing 1.32 again.  All European stock markets making consecutive lower-highs and now testing immediate-term TRADE lines of support (the only lines left) of 5845, 3071, and 15102 on the DAX, CAC, and MIB, respectively.

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

ASIAN MARKETS

 

INDIA – all the Growth Slowing on the East side of the world continues - China (down another -1% to a new low last night, down -18.4% YTD) and India put up their worst Industrial Production print in 28 months last night (down -5.1% y/y) = Sensex dropped another -2.2% (crashing, down -23% YTD)

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST (HEADLINES FROM BLOOMBERG)

  • Singaporeans Deny Conspiring Against U.S. in Technology Exports
  • Speculators Miss Oil Drop on European Debt Woes: Energy Markets
  • Dubai Sukuk Yields Rise as Debt Payments Loom: Islamic Finance
  • Armed Clashes in Syria Leave Scores Dead in Anti-Assad Campaign
  • Etihad Orders More Boeing 787-9s, 777s in $2.8 Billion Deal
  • Syria’s Death Toll Mounts as Economic Squeeze Tightens
  • Aramex Taps South African Market With Berco Express Purchase
  • Egypt May Borrow Abroad to Bolster Economy, Prime Minister Says
  • Mideast Sectarian Strife Is Symptom of Weak States: Noah Feldman
  • Taqa Will Repay Remainder of 5.62% Bond at Maturity in October
  • Bahrain Bank Lending Grows Helped by Personal Loans: Arab Credit
  • Iran Wants OPEC to Adjust Output for Libya, Iraq Oil, Mehr Says
  • BP Sees Pipeline Gas Price Moving Away From Oil Index in Europe
  • Barcelona Faces Qatar’s Al-Sadd in Club World Cup Semifinal
  • Iran Seeks to Decode Information Stored on Downed U.S. Drone
  • Nakheel Says to Pay 10% Profit on Islamic Bonds on Time
  • Arab States May Suffer 24% Foreign-Investment Slump After Unrest
  • Alstom Signs EU400m Contract for 728mw Power Plant in Iraq

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 


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