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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 26, 2012


As we look at today’s set up for the S&P 500, the range is 22 points or -0.58% downside to 1389 and 0.99% upside to 1411. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1262 (2770) 
  • VOLUME: NYSE 741.64 (-2.79%)
  • VIX:  14.82 -4.82% YTD PERFORMANCE: -36.67%
  • SPX PUT/CALL RATIO: 1.96 from 2.49 (-21.29%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 40.19
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 2.28 from 2.23
  • YIELD CURVE: 1.91 from 1.88 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Fed’s Plosser speaks in Paris
  • 8am: Fed Chairman Bernanke speaks in Virginia
  • 8:30am: Chicago Fed Nat Activity Index, Feb. (prior 0.22)
  • 10am: Pending Home Sales (M/m), Feb., est. 1.0% (prior 2.0%)
  • 10:30am: Dallas Fed Manufacturing, Mar., est. 16 (prior 17.8)
  • 11:30am: U.S. to sell $30b 3-mo., $29b 6-mo. bills 

GOVERNMENT:

    • Supreme Court hears health-care challenge
    • President Obama attends nuclear summit in South Korea
    • FTC hosts press conference on release of final privacy framework report
    • House, Senate in session 

WHAT TO WATCH:

  • Supreme Court hears first of three days of arguments over President Obama’s health-care law
  • Yahoo named three new board members after failing to reach compromise with Third Point, which pledged a proxy fight
  • Rick Santorum won Louisiana Republican primary on Saturday; next major primary is Wisconsin on April 3
  • Obama warned North Korea its plan to fire long-range rocket undermined prospects for future negotiations
  • Bats Global blamed computer malfunction for trading errors last week that results in Bats pulling IPO
  • Pending home sales may have climbed 1% in Feb. after a 2.0% gain in Jan., economists est: Weekly eco preview
  • U.K., most of Europe set clocks ahead one hour over weekend
  • Citigroup expects $700m impairment charge in 1Q as it cuts its investment Turkey’s Akbank by more than half
  • Roche extended its $5.7b hostile takeover offer for Illumina for a second time
  • U.S. Treasury Department set to sell on or around today preferred stock in six banks it bought stakes in as part of TARP
  • ING said to be seeking at least $7b for Asian insurance business and has drawn interest from potential suitors including MetLife 

EARNINGS:

    • Cal-Maine Foods (CALM) 6:30 a.m., $1.02
    • Kior (KIOR) 4:01 p.m., $(0.15)
    • Apollo Group (APOL) 4:05 p.m., $0.37    

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


COPPER – the Doctor continues to look exactly like the slope of global growth, slowing. Copper now bearish TRADE and TAIL with big TRADE resistance overhead at $3.85/lb. 

  • Hedge Funds Make Wrong-Way Bets for a Fourth Week: Commodities
  • Soybeans Jump to Six-Month High as U.S. Growers Favor Corn
  • Copper Swings Between Gains, Drops as European Crisis May Worsen
  • Oil Falls, Extending Two-Week Drop on Europe Debt, Slower China
  • Sugar Falls to One-Week Low on Indian Supplies; Cocoa Advances
  • Gold May Fall in London as Dollar Strengthens, ETP Holdings Drop
  • China’s Soft Landing Still May Be Hard for Commodity Exporters
  • Robusta Coffee May Gain 10% as Emerging Markets’ Demand Climbs
  • Gold Imports by India to Slump as Jewelers Extend Shutdown
  • Shale Boom in Europe Fades as Polish Wells Come Up Empty: Energy
  • Vitol Said to Buy Diesel From Mangalore Refinery for May Loading
  • Total Says North Sea Elgin Field Output Halts After Gas Leak
  • Asia Naphtha Crack Rebounds; Chevron Sells Fuel: Oil Products
  • Hedge Funds Make Wrong Way Bet for 4th Week
  • BG, Eni Make New East Africa Gas Finds Larger Than U.K. Reserves
  • Japan Has One Reactor With 1.9% of Total Capacity Online
  • German Next-Month Clean-Dark Spread Falls to Lowest Since August 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


SPAIN – continued selling in Spanish stocks, down -1.8% to start the week and now down -5.1% for the YTD (vs Germany +18.6%) and Super Mario Monti wants “firewall.” It ain’t over, till its over folks.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


JAPAN – clients want a “catalyst” in the Japanese Sovereign Debt Crisis – here’s ours: gravity. The Yen kicks off the week down -0.4% vs the USD (after Goldman said buy Yen Fri) and former exec director of the BOJ (Hirano, from 2002-2006) saying that Japan has “crossed the Rubicon with really desperate measures.”

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 


THE WEEK AHEAD

The Economic Data calendar for the week of the 26th of March through the 30th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

THE WEEK AHEAD - 1

THE WEEK AHEAD - 2


Weekly European Monitor: And These Are the Days of Our Lives

Positions in Europe: Short Greece (GREK), Short Spain (EWP)

 

Asset Class Performance:

  • Equities:  The EuroStoxx50 closed down -3.2% week-over-week. Bottom performers: Russia (MICEX) -4.6%; Finland -3.5%; Italy -3.5%; Sweden -3.5%; France -3.3%. Top performers:  Greece 1.0%; Portugal 70bps; Slovakia 10bps.  
  • FX:  The EUR/USD is up +0.67% week-over-week.  W/W Divergences: HUF/EUR -1.41%, NOK/EUR -1.09%, PLN/EUR -0.77%; RON/EUR +0.28%. YTD Performance: PLN/EUR +7.56%, RUB/EUR +7.28%, HUF/EUR +7.17%, CZK/EUR +3.93%, NOK/EUR +1.42%, CHF/EUR +0.90%; ISK/EUR -5.11%, RON/EUR -1.00%, GBP/EUR -0.21%, SEK/EUR -0.12%.
  • Fixed Income:  Greek 10YR yields gained +192bps week-over-week to 20.04%, with a +181bps change in the Friday/Thursday period ahead of today’s deadline for holders of international law Greek bonds to give notice on swap participation.  10YR yields for Spain and Italy move higher by 34bps (to 5.53%) and 31bps (to 5.15%), respectively, as Portugal saw the largest contraction versus its peers at -98bps to 12.66%.

Weekly European Monitor: And These Are the Days of Our Lives - 11. yields

 

 

Call Outs:


Germany - Merkel is planning to build offshore wind farms that will cover an area six times the size of New York City and erect power lines that could stretch from London to Baghdad.

  • The program will cost €200 billion (~ 8% of 2011 GDP) and aims to replace 17 nuclear reactors that supplied about a fifth of its electricity with renewables such as solar and wind, according to the DIW economic institute in Berlin.
  • (+) Suntech Power Holdings Co. (STP) (Solar Panel), Vestas Wind Systems A/S (VWS) (Wind Turbines). (-) nuclear stations, RWE AG (RWE) and EON AG (EOAN).

Germany - Mercedes dealers in China are offering record markdowns of 25% on high-end models such as the S300 sedan, according to data stretching back to 2009 at cheshi.com.


Ireland - A fund affiliated with Apollo Global Management said that it will buy the Irish consumer-credit-card portfolio from Bank of America BAC.

 

Spain/Ireland - Goldman notes Spanish housing market is bad and getting worse.  Ireland remains the worst of the worst and Goldman sees yet another growing divide between the haves and have-nots of Europe as the residential property price performance can essentially be split into four groups: Strong, Recovering, Weak, and Ireland/Spain.

 

France - Sarkozy vs. Hollande: A BVA poll of 978 voters taken March 21 and 22 after the terrorist incident gave Hollande 29.5 percent support, compared with 28 percent for Sarkozy.


 

In Review:


In last week’s European Monitor titled “Guiding Expectations” we set out the fundamentals and market trends that we believe should temper expectations that Europe is “out and in the clear”. These days of our lives spell very weak growth in Europe due to fiscal consolidation, a necessary evil in particular for the PIIGS.

 

This week, equity market performance tanked alongside Manufacturing and Service PMIs for March that showed a decidedly negative month-over-month move to the downside, to levels at or below the 50 line representing contraction (see chart below).

 

Weekly European Monitor: And These Are the Days of Our Lives - 11. pmi

 

As we explained in recent research, we’re increasingly worried about Spain. This coming Friday’s budget announcement from Spanish PM Rajoy will be an important signal for the market. Rajoy must push through further fiscal consolidation to help meet the deficit target of 5.3% of GDP this year from 8.5% in 2011. This is a tall order, and already there’s been much push-back from the populace on issued austerity. Given an already fractured economy with weak confidence and sky-high unemployment (23% avg. and +50% for youth), we think a social uprising is in the cards.  

 

One indicator of rising concern is 10 YR Spanish bond yields rising higher then Italian, the first occurrence since August 2011.  Further there’s indication that many Spanish lenders have yet to recognize the full extent of their loan losses, which puts further pressure on the underfunded EFSF and ESM bailout packages.   

 

 

CDS Risk Monitor:

 

CDS fell -94bps to 1217bps in Portugal on a w/w basis to lead decliners. Ireland fell -18bps to 617bps.  Spain led gains, advancing +36bps to 440bps (or 140bps over the Lehman Line of default risk) and Italy pushed up +20bps to 384bps. 

 

Weekly European Monitor: And These Are the Days of Our Lives - 11. cds   a

 

Weekly European Monitor: And These Are the Days of Our Lives - 11. cds   b

 


Data Dump:


Eurozone Construction Output -1.4% JAN Y/Y vs 9.8% DEC   [-0.8% JAN M/M vs -1.9% DEC]

Eurozone Composite 48.7 MAR (exp. 49.6) vs 49.3 FEB

Eurozone Current Account (net nsa) -12.3B EUR JAN vs 18.3 B EUR DEC  [4.5B EUR JAN vs 3.4B EUR DEC]

Eurozone Industrial New Orders -3.3% JAN Y/Y (exp. -3.1%) vs -0.4% DEC  [-2.3% JAN M/M (exp. -2.2%) vs 3.5% DEC]

 

Germany Producer Prices 0.4% FEB M/M (exp. +0.5%) vs 0.6% JAN   [3.2% FEB Y/Y (inline) vs 3.4% JAN]

Italy Industrial Sales -4.4% JAN Y/Y vs 5.4% DEC

Italy Retail Sales -0.8% JAN Y/Y (exp. -3.4%) vs -3.7% DEC   [0.7% JAN M/M (exp. -0.1%) vs -0.8% DEC]

 

France Business Confidence Indicator 96 MAR (exp. 93) vs 93 FEB

France Production Outlook -15 MAR (exp. -28) vs -27 FEB

France Own-Company Production Outlook 6 MAR vs -1 FEB

 

Switzerland Industrial Production 7.9% Q4 Q/Q (exp. +2.6%) vs -2.0% in Q3 

Switzerland Money Supply M3 6.4% FEB Y/Y vs 7.3% JAN

Switzerland Exports 9.2% FEB M/M (exp. +0.3%) vs -10.4% JAN

Switzerland Import -12.3% FEB M/M vs 5.5% JAN

 

UK CPI 3.4% FEB Y/Y (exp. 2.3%) vs 2.6% JAN   [0.6% FEB M/M (exp. 0.4%) vs -0.5% JAN]

UK RPI 3.7% FEB Y/Y (exp. 3.5%) vs 4.0% JAN

UK Public Sector Net Borrowing 12.9B GBP FEB vs -10.2B GBP JAN

UK Retail Sales w/ Auto Fuel -0.8% FEB M/M (exp. -0.5%) vs 0.3% JAN   [1.0% FEB Y/Y (exp. 2.4%) vs 1.4% JAN]

UK BBA Loans for House Purchase 33,103 FEB (exp. 37,250) vs 37,977 JAN

 

Spain Producer Prices 3.4% FEB Y/Y (exp. 3.4%) vs 3.7% JAN   [0.6% FEB M/M (exp. 0.7%) vs 0.9% JAN]

Portugal Producer Prices 4.1% FEB Y/Y vs 4.7% JAN   [0.3% FEB M/M vs 2.3% JAN]

 

Ireland PPI 2.3% FEB Y/Y vs 2.7% JAN

Ireland Q4 GDP -0.2% Q/Q (exp. +1.0%) vs -1.1% in Q3    [0.7% Y/Y (exp 2.2%) vs 0.2% in Q3]

 

Finland Unemployment Rate 7.7% FEB vs 7.8% JAN


 

Interest Rate Decisions:


(3/21) Iceland Sedlabanki Interest Rate HIKE 25bps to 5.00%

 

 

The European Week Ahead:


Monday: Mar. Germany Import Price Index (Mar 26-20), IFO Business Climate, Current Assessment, and Expectations; Mar. UK Nationwide House Prices; Feb. France Jobseekers; Mar. Italy Consumer Confidence Indicator

 

Tuesday: Apr. Germany GfK Consumer Confidence Survey; Mar. UK CBI Reported Sales; Mar. France Consumer Confidence Indicator; Feb. Spain Budget Balance YtD

 

Wednesday: Feb. Eurozone Money Supply; Mar. Germany CPI; Q4 UK GDP – Final; Q4 France GDP – Final, Total Business Investment – Final, Current Account; Mar. Italy Business Confidence

 

Thursday: Mar. Eurozone Consumer Confidence Indicator – Final, Business Climate Indicator, Economic, Industrial, and Services Confidence; Mar. Germany Unemployment Data; Mar. UK GfK Consumer Confidence Survey, Feb. UK Net Consumer Credit, Net Lending, Mortgage Approvals, M4 Money Supply; Jan. UK Index of Services; Mar. Spain CPI – Preliminary; Jan. Spain Total Housing Permits

 

Friday: Mar. Eurozone CPI Estimate; Feb. Germany Retail Sales; Feb. France Producer Prices, Consumer Spending, Hourly Wages; Feb. Italy PPI; Jan. Greece Retail Sales; Spain Prime Minister Rajoy to present 2012 Budget; Feb. Spain Retail Sales; Jan. Spain Current Account

 

 

Extended Calendar Call-Outs:


22 April:  French Elections (Round 1) begins, to conclude in May.

 

29 April:  Potential Greek Presidential Elections.

 

30 June:  Deadline for EU Banks to meet €106 billion capital target/the 9% Tier 1 capital ratio.

 

1 July:  ESM to come into force.

 

 

Matthew Hedrick

Senior Analyst


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 80.64%
  • SHORT SIGNALS 78.61%

THE HBM: PEET, MCD, DRI

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Commentary from CEO Keith McCullough

 

Finally! The Japanese Yen is the Most Read story on Bloomberg (ahead of Angry Birds):

  1. JAPAN – currencies lead bonds, then currencies/bonds lead stocks – that’s what happened into the European Sov Debt Crisis and I don’t know why that would change in Japan. The Yen looks awful and finally the Nikkei broke an impt line of immediate-term support (10,065) last night.
  2. SPAIN – the Spanish IBEX continues to flag negative divergences vs most major markets of the world (down -2% YTD vs Russia +20%) and Spain’s bond yields continue to move up into the right. German Finance Minister on Spain and Italy yest: “they are too big to save”… alrighty then.
  3. US TREASURIES – the top in bond yields came last week when Credit Suisse said “buy stocks b/c bond yields are rising”; now its game time w/ TRADE line support for 10s at 2.27% and the long-term TAIL of resistance up at 2.47%. I’m expecting to see a battle royal in this 20bps range.

SP500 down 3 days in a row after the 2ndlargest down day of 2012 yesterday. When -0.72% is the 2ndworst day you’ve seen, mean reversion thoughts should be dancing in your head. This is not normal.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: PEET, MCD, DRI - subsector

 

 

QUICK SERVICE

 

PEET: Peet’s Coffee estimates were raised at Jeffries.  The price target was raised to $88 from $68.

 

MCD: McDonald’s Japan plans to introduce a service that will enable customers to place an order and pay for it using their mobile phones, according to Bloomberg.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:


SBUX: Starbucks gained 2.6% on accelerating volume.

 

DPZ: Domino’s Pizza declined 8.8% on accelerating volume.  The stock was downgraded on Tuesday by BofA following the announcement of a special dividend that investors were baking in.  JP Morgan also lowered its price target to $37 from $40.

 

SONC: Sonic is facing a tough compare (sales and margin) next quarter and investors are less-than-convinced by the strategies being put forward by the current management team.

 

 

CASUAL DINING

 

DRI: Darden Restaurants reports 3QFY12 EPS of $1.25 versus expectations of $1.24. Blended US same-restaurant sales for Olive Garden, Red Lobster, and LongHorn Steakhouse came in at 4.1% versus guidance of approximately 4% provided a month ago. 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

RT: Ruby Tuesday declined 2% on accelerating volume.

 

THE HBM: PEET, MCD, DRI - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: MACAU & SINGAPORE VISITATION; S'PORE FEB INFLATION RATE

The Macau Metro Monitor, March 23, 2012

 

 

MACAU VISITOR ARRIVALS DSEC

Visitor arrivals totaled 2,130,977 in February 2012, down by 1.5% YoY.  In the first two months of 2012, visitor arrivals increased by 8.3% YoY to 4,592,617.  The average length of stay of visitors decreased by 0.1 day YoY to 0.9 day.  Visitors from Mainland China increased by 6.7% YoY to 1,285,266, with those traveling to Macao under the Individual Visit Scheme dropping by 11.4% to 514,095

 

THE M3: MACAU & SINGAPORE VISITATION; S'PORE FEB INFLATION RATE - MACAU

 

SINGAPORE EYES UP TO 10% RISE IN 2012 VISITOR ARRIVALS Reuters

Singapore Second Minister for Trade and Industry S Iswaran said, "STB (Singapore Tourism Board) is projecting visitor arrivals to be between 13.5 and 14.5 million this year, an increase of up to 10% from 2011."  The board also expects tourism receipts to reach S$23 to S$24 billion ($18.95 billion) this year, a rise of up to 8% YoY.

 

SINGAPORE'S INFLATION RATE EASES TO 4.6% IN FEBRUARY Channel News Asia

Singapore's inflation rate eased to 4.6% YoY in February 2012 from 4.8% in January.  This was lower than Street expectations of 4.9%.  Core inflation, which excludes accommodation and private road transport, eased to 3.0% YoY in February, down from 3.5% YoY in January.


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