prev

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 5, 2012


As we look at today’s set up for the S&P 500, the range is 25 points or -1.58% downside to 1258 and 0.38% upside to 1283. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 6/04 NYSE -452
    • Up from the prior day’s trading of -2193
  • VOLUME: on 6/04 NYSE 824.27
    • Decrease versus prior day’s trading of -17.53%
  • VIX:  as of 6/04 was at 26.12
    • Decrease versus most recent day’s trading of -2.03%
    • Year-to-date increase of 11.62%
  • SPX PUT/CALL RATIO: as of 6/04 closed at 2.19
    • Down from the day prior at 2.64

CREDIT/ECONOMIC MARKET LOOK:


10yr (UST) – 2 consecutive days of selling on bonds give the 10yr +5bps per day this week to 1.55% this morning (vs 1.45% on the freakout Friday low); my new risk management range (immediate-term) for the 10yr is 1.45-1.69%. 

  • TED SPREAD: as of this morning 40
  • 3-MONTH T-BILL YIELD: as of this morning 0.07%
  • 10-Year: as of this morning 1.52
    • Unchanged from prior day’s trading 
  • YIELD CURVE: as of this morning 1.27
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Fed’s Fisher to speak in Fife, Scotland
  • 10 am: ISM Non-Manf. Composite, May, est. 53.5 (prior 53.5)
  • 11:30 am: U.S. to sell 4-wk bills
  • 2:15pm: Fed’s Bullard to Speak on housing in St. Louis
  • 7:15pm: Chicago Fed’s Evans to speak to money marketeers in New York 

GOVERNMENT:

    • House meets at noon for morning hour debate, 2pm for legislative business
    • Senate will vote on the motion to invoke cloture on S.3220, to amend the Fair Labor Standards Act of 1938 to provide more effective remedies to victims of discrimination in the payment of wages on the basis of sex, 2:30pm
    • Walt Disney Chairman and CEO Robert Iger, First Lady Michelle Obama announce changes in Disney’s nutrition policies
    • World Bank hosts meeting of Intl. Corruption Hunters Alliance
    • Berkshire Hathaway Inc. Chairman and CEO Warren Buffett attends Economic Club of Washington’s 25th anniversary dinner
    • Governor Scott Walker, R-Wis., faces recall election
    • FDIC Advisory Committee on Community Banking meets, 8:30am
    • CFTC holds public roundtable to discuss proposed regulations for designated contract markets, 9:30am
    • California voters weigh $1 increase in cigarette tax 

WHAT TO WATCH:  

  • Spain calls for EU aid for banks to battle financial crisis
  • U.S. service industries probably held at a 4-mo. low
  • JPMorgan to report $4.2b trading loss, ISI forecasts
  • Apple denied ban on Samsung Galaxy tab during U.S. patent trial
  • MF Global bankruptcy trustee Freeh sees claims of $3b
  • J&J to stop selling vaginal implants after safety complaints
  • Wynn Macau plans to invest $4b for new casino resort
  • BlackRock’s Robert Doll to retire as chief equity strategist
  • Goldman Sachs said to cut <50 jobs as revenue outlook worsens
  • Amylin said to receive initial offers at $25-$29/shr 

EARNINGS:

    • Layne Christensen (LAYN) 6am, $0.26
    • JA Solar (JASO) 7am, $(0.60)
    • United Natural Foods (UNFI) 7:30am, $0.56
    • Saputo (SAP CN) 12pm, C$0.61
    • Guidewire Software (GWRE) 4pm, $(0.02)
    • Oxford Industries (OXM) 4pm, $1.07
    • Bob Evans Farms (BOBE) 4pm, $0.74
    • Ulta Salonmetics & Fragrance (ULTA) 4:01pm, $0.53
    • Mattress Firm Holding (MFRM) 4:01pm, $0.25
    • FuelCell Energy (FCEL) 6pm, $(0.05) 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Rice Poised for Third Record Crop as Prices Retreat: Commodities
  • Gold Gains on Speculation of Stimulus Measures by Policy Makers
  • Oil Falls on Speculation Europe’s Debt Crisis Will Curb Demand
  • Mongolia’s Erdenes May Be Valued at $10.6 Billion, Frontier Says
  • Oil to Avoid Repeat of 2008 Collapse, Shell CEO Voser Says
  • Palm Oil Snaps Four-Day Losing Streak on Ramadan Demand Outlook
  • EON Will Lose Millions of Euros After ‘Irregularities’ by Trader
  • El Nino Seen Developing in Coming Months as Pacific Ocean Warms
  • Freeport’s Indonesian Workers Threaten Strike Amid Tension
  • Asia Buys $500 Billion Australian Gas With U.S. Flooded: Energy
  • Semafo Bets on Africa to Double Gold Output: Corporate Canada
  • Nestle Selling New Coffee Machines as Recipe for Growth: Retail
  • Oil Bailing Out Singh Seen Halting Rupee Slide: India Credit
  • Joy Global Tempts Komatsu With Cheapest Industry Deal: Real M&A
  • Gas Price Slump Unlikely to Halt Capacity
  • Copper Declines, Reversing Advance, as Dollar Rally Curbs Demand
  • Corn Declines on Crop Conditions After Gaining Most in Two Weeks 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


GERMANY – after printing another sequential decline in another high-frequency data pt (has been happening since March) w/ German Services PMI down to 51.8 (vs 52.2), German stocks lead on the downside for the 2nd consecutive day in Europe as PM’s just sell whatever was working; DAX down -17% now from the March top.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


AUSTRALIA -  per one of the only respectable central bankers in the world (he goes both ways, raising and cutting, so that he has bullets); Stevens cut by another 25bps last night reminding us that “the ongoing trend is unclear and could be dampened by slower Chinese growth” – don’t just blame Europe folks. Australia’s slow-down is nasty.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

The Hedgeye Macro Team


President Obama’s Reelection Chances Fall to 54.2% -- Hedgeye Election Indicator

If the US Presidential election were held today, President Obama would stand a 54.2%  chance of winning, according to the Hedgeye Election Indicator (HEI). That marks the lowest reading in about five months, and reflects a weakening US stock market and a strengthening US stock market.

 

 

President Obama’s Reelection Chances Fall to 54.2% -- Hedgeye Election Indicator  - HEI

 

 

Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment. Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  

 

The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.

 

Hedgeye releases the HEI every Tuesday at 7am ET until the election November 6


HedgeyeRetail: Chart of the Day; Nike/Umbro

Wall Street will think of Umbro accretion/dilution in terms of earnings and EBITDA. What they aren’t getting is the value of owning the rights to reproduce the ‘kit’ for each’s team’s colors.

 

Umbro’s most valuable football asset – by a long shot -- is Manchester City.  MC is officially no longer the ‘Other Manchester’ after it beat Man United and later took the Premier League title for the first time in 44 years (the equivalent of the Mets beating the Yankees) on April 30.

 

Now Nike is selling the Umbro brand. Tough loss of the ManCity kit. Or is it? Interestingly enough, on May 5, just six days after beating Manchester United, and despite being only 3 years into a 10-year deal, Nike renegotiated Umbro’s contract with the club such that ManCity will don the Swoosh next year.

 

Eight days later, ManC won the Premier League crown.

 

The timing is no coincidence. 

 

HedgeyeRetail: Chart of the Day; Nike/Umbro - chart1

 

HedgeyeRetail: Chart of the Day; Nike/Umbro - Table 1


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

CHART DU JOUR: CRUISE VALUATION SPREAD

  • CCL’s P/E valuation premium over RCL has widened to its highest level since Carnival’s acquisition of Princess in 2002.
  • Historically, CCL has a 2-3x premium over RCL on P/E valuation.  That spread has risen sharply in the past few months after narrowing in the midst of the Costa Concordia tragedy.
  • We expect the spread to narrow in the intermediate term due to RCL’s pricing outperformance for the rest of CY 2012.   

 

CHART DU JOUR:  CRUISE VALUATION SPREAD - CCL


BACKING OFF OF INDIA – AT LEAST FOR NOW

CONCLUSION: We are suspending our bearish bias on rupee-denominated assets – particularly Indian equities – on the event that INR-supportive inflows pick up in the immediate-term ahead of a potential rate cut. Further, higher lows in the rupee has the potential to develop into a sustainable TREND, making the risk/reward on shorting India from here a lot less asymmetric than it has been recently.

 

Over the weekend, RBI Deputy Governor Subir Gokarn explicitly confirmed a shift in the central bank’s policy bias to growth-supportive, rather than constrained by ever-present inflationary pressures stemming from infrastructure bottlenecks, elevated food and energy prices, and, of course, the central government’s bloated fiscal budget.

 

Into and through the event, India’s interest rate swaps market went from pricing in no monetary policy changes over the NTM (a core component of our bearish thesis) to pricing in -39bbps of easing, suggesting to us that the market has taken this rhetorical shift quite literally.

 

BACKING OFF OF INDIA – AT LEAST FOR NOW - 1

 

International inflows to India’s INR-denominated debt market are picking up as well, as Global Macro investors attempt to get ahead of pending rate cuts, etc. India’s 10yr sovereign debt yields have declined -30bps over the past month, 19bps of which occurred in the past week.

 

BACKING OFF OF INDIA – AT LEAST FOR NOW - 2

 

Indian equities, still decidedly in a Bullish Formation, flashed a critical positive divergence overnight, closing up +15bps with most of the other major markets in the region down 2-4% on the day. If the tide on Global Macro sentiment turns in the coming weeks – particularly on the heels of politicized action out of the Fed or ECB – India could potentially test its TRADE and potential TREND lines of resistance. Importantly, this would coincide with the RBI lowering rates by 25-50bps at its JUN 18 meeting.

 

BACKING OFF OF INDIA – AT LEAST FOR NOW - 3

 

Our proprietary G/I/P analysis suggests that it would be imprudent to for the RBI to streamline the current disinflationary forces they point to as supportive of adopting an easing bias. In fact, our models point to limited downside in Indian inflation over the intermediate term, a finding supported by the recent peaking of the disinflationary tailwind that is Deflating the Inflation (commodities) due to measured weakness in the rupee (-12.3% vs. the USD from its YTD peak).

 

BACKING OFF OF INDIA – AT LEAST FOR NOW - INDIA

 

BACKING OFF OF INDIA – AT LEAST FOR NOW - 5

 

To the RBI’s credit, however, the decline in crude oil prices does reduce inflationary pressure stemming from the fiscal deficit, as it allows the gov’t to reduce subsidy expenditures on capping gasoline and diesel prices.

 

BACKING OFF OF INDIA – AT LEAST FOR NOW - 6

 

Net-net-net, with the RBI now shifting to a growth-supportive policy stance, you could actually see capital inflows accelerate in the short term (positive for the INR vs. the USD); whether or not this becomes a sustainable trend remains the key question – we’ll let the market tell us what to do here. We’ve said all along that Deflating the Inflation would be a bullish factor for the global economy (India included), but also that getting from point A to point B required short-term pain from a financial market perspective. India, which was one of the first major equity markets to start breaking down in the YTD, may indeed signaling to us that “point B” has gotten incrementally closer from a domestic perspective.

 

All told, we would be reckless to fight the whims of Indian policymakers, who are eschewing vigilance on inflation (currently 270bps above their unofficial target) in favor of adopting a growth-supportive monetary policy bias. As such, we are suspending our bearish bias on rupee-denominated assets – particularly Indian equities – on the event that INR-supportive inflows pick up in the immediate-term ahead of a potential rate cut.

 

Darius Dale

Senior Analyst


European Banking Monitor: French and German Bank Risk Widens

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 .


Key Takeaways:

  

* European Sovereign CDS mostly widened along with European Bank CDS. French and German banks widened across the board.  

 

 If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.

 

Matthew Hedrick

Senior Analyst

 

(o)

-------------

European Financials CDS Monitor – Bank swaps were wider in Europe last week for 26 of the 39 reference entities we track. The median widening was 7 bps.  

 

European Banking Monitor: French and German Bank Risk Widens - aa. banks

 

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 widened by 1 bps to 40 bps.

 

European Banking Monitor: French and German Bank Risk Widens - aa. euribor

 

ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  The latest overnight reading is €784.97B.

 

European Banking Monitor: French and German Bank Risk Widens - aa. ecb facility

 

Security Market Program – For a twelfth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 6/1, to take the total program to €212 Billion.

 

European Banking Monitor: French and German Bank Risk Widens - aa. SMP

 

Matthew Hedrick

Senior Analyst


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next