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THE M3: UNIONPAY; CHUI/SANDS CHINA; S'PORE INFLATION

The Macau Metro Monitor, June 25, 2012

 

 

UNIONPAY'S TIGHTENING OVERSEAS SPENDING LIMIT AFFECTED VIP BUSINESS Macau Daily News

Visitor arrivals and gaming revenue in VIP business have declined sharply in the recent two months, triggering concerns over tightening of the Individual Visit Scheme by Guangdong authorities.  Gaming industry insiders said that the gaming revenue was most affected by the tightened overseas spending limit by China UnionPay rather than the enforcement of visa endorsement by mainland authorities.  It is predicted that the gaming revenues for the whole year would maintain a single-digit growth.

 

CHUI BACKS ALVES IN SANDS' BEIJING BRIBERY ALLEGATIONS Macau Business

Macau Chief Executive Fernando Chui Sai On said he accepted Leonel Alves’ explanation regarding the alleged payment requests by a high-ranking Beijing official to Sands China Ltd.  Alves he had personally explained the issue to Chui, while once again rebuffing claims of any wrongdoing in the case.

The Beijing official in the case claimed he could help Sands China gain government authorization to sell units at its Four Seasons luxury apartment hotel in Cotai.  The deal would also include a settlement in the on-going litigation process between Sands and Taiwanese Asian American Entertainment Corporation Ltd, led by businessman Marshall Hao.  The amount requested was US$300 million (MOP2.4 billion).


Aside from being a lawyer and Sands China Ltd legal adviser, Alves is also a legislator in Macau and a member of the city’s executive council, an advisory body to the Macau government.  He is also a member of the Chinese People’s Political Consultative Conference.

 

SINGAPORE INFLATION EASES TO 5.0% IN MAY Channel News Asia

Singapore CPI in May was +5.0% YoY, down from +5.4% in April, as prices for accommodation and oil-related items rose at a slower pace.  This was better than economists' forecast of +5.1%. 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 25, 2012


As we look at today’s set up for the S&P 500, the range is 17 points or -1.27% downside to 1318 and 0.00% upside to 1335. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 6/22 NYSE 1140
    • Up from the prior day’s trading of -1901
  • VOLUME: on 6/22 NYSE 1577.41
    • Increase versus prior day’s trading of 82.18%
  • VIX:  as of 6/22 was at 18.11
    • Decrease versus most recent day’s trading of -9.81%
    • Year-to-date decrease of -22.61%
  • SPX PUT/CALL RATIO: as of 6/22 closed at 1.65
    • Down from the day prior at 1.81 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.62
    • Decrease from prior day’s trading at 1.67
  • YIELD CURVE: as of this morning 1.33
    • Down from prior day’s trading at 1.37 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Nat Activity Index, May (prior 0.11)
  • 10am: New Home Sales, May, est. 345k (prior 343k)
  • 10:30am: Dallas Fed Manf. Activity, June (prior -5.1)
  • 11am: Fed to sell $8-8.75b notes in 3/15/2014-10/31/2014 range
  • 11:30am: Treasury to sell $30m 3-mo. bills, $27m 6-mo.
  • 4pm: USDA crop progress report 

GOVERNMENT:

    • Washington Week Ahead: Supreme Court may rule on health law
    • Supreme Court may rule on challenge to health-care law
    • House, Senate in session
    • Senate to take up long-term flood insurance reauthorization
    • Heather Zichal, White House energy and climate adviser, speaks on hydraulic fracturing at New Policy Institute, 12pm
    • Export-Import Bank President Fred Hochberg speaks at Center for American Progress, 12pm
    • Treasury Undersecretary for International Affairs Lael Brainard  speaks at Women’s Foreign Policy Group discussion on “International Financial Diplomacy,” 1pm
    • George Walz, VP at Financial Industry Regulatory Authority’s Office of Risk, joins panel discussion on “FINRA Examination Data Collection Process,” 1:30pm
    • HHS, CMS advisory panel meets on Medicare Economic Index price, productivity measurements, 8:30am
    • WTO dispute settlement body meets in Geneva
    • International Trade Commission to say whether it will review findings by 2 of its judges that MSFT, AAPL infringed Motorola Mobility patents
    • Governmental Accounting Standards Board meets in Conn. to vote on state, local pension-reporting rules that would reduce funded levels of plans  

WHAT TO WATCH:  

  • AB Inbev said to near Modelo takeover for more than $12b
  • Supreme Court announces decisions; may rule on challenge to health-care law: preview
  • ITC to say whether it will review findings that MSFT, AAPL infringed Motorola Mobility patents
  • Fitch downgrades Republic of Cyprus to junk
  • European leaders prepare for summit on currency union
  • Tropical Storm Debby may spare Gulf of Mexico oilfields
  • Russell Indexes to post final membership lists for indexes
  • Shire falls after FDA unexpectedly approved a generic version of its hyperactivity medicine Adderall
  • Pixar’s “Brave” opens at No. 1 in U.S./Canada theaters with $66.7m for parent Walt Disney
  • JPMorgan to let CIO make potentially risky investments: WSJ
  • Sales of new homes probably rose in May for 2nd month to 346k annual rate, according to median forecast by Bloomberg News
  • New York settled a lawsuit for $410m with J. Ezra Merkin over claims that Merkin funds secretly placed client money with Bernard L. Madoff
  • Banks need “healthy push” to avoid prolonging crisis: BIS
  • Vivendi, whose mgmt met during the weekend to discuss strategy, said it had nothing to update investors with
  • Bain said to pay $1b for 50% stake in Japanese TV company
  • India plans measures to support rupee, spurring inflation
  • No IPOs expected to price today: Bloomberg data
  • Weekly Industry Agendas: Finance, Media/Entertainment, Industrials, Energy, Real Estate, Consumer, Health, Transports, Technology, IPOs, Canada Oil & Gas, Canada Mining
  • U.S. Health Care, EU Summit, Google: Week Ahead June 23-30 

EARNINGS:

    • HB Fuller (FUL) After-mkt, $0.55
    • Synnex (SNX) 4:01pm, $0.90
    • Apollo Group (APOL) 4:05pm, $0.97  

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG 

  • Bulls Proven Wrong as Prices Slump Into Bear Market: Commodities
  • Gold Set to Decline in London as Stronger Dollar Curbs Demand
  • Oil Trades Below $80 for a Third Day Amid European Debt Concern
  • Grains Climb as Dry Weather Wilts U.S. Crops, Threatening Supply
  • Copper Seen Advancing for First Day in Four Before EU Meeting
  • Sugar Rebounds on Speculation Prices Fell Too Far; Coffee Slides
  • Fonterra Farmers Approve Plan to Open Exporter to Equity Markets
  • Morgan Stanley Expects Corn, Soybean Prices to Advance on Supply
  • Hong Kong’s LME Deal Spurs Industry’s Steepest Slump: Real M&A
  • Coal Plant Plunge Threatens Billions in Pollution Spend: Energy
  • Hedge Funds Turning Bearish Push Oil Below $80: Energy Markets
  • Florida Orange Trees Threatened on Tropical Storm Debby Floods
  • Oil to End Commodity Currencies’ Divergence: Chart of the Day
  • China Faces Summer Steel Output Cut on Prices: Chart of the Day
  • Silver Seen Extending Drop as Support Breaks: Technical Analysis

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


RUSSIA – get the Dollar and the Petro price right, and you get the Petro-Dollar equities right – this is obvious in Russian stocks (next to Egypt’s -9% drop last wk, the RTSI led losers at -5% and has now eclipsed Spain on my drawdown sheet for 2012 at -27% from YTD top vs Spain and Italy at -24% and -22%).

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

ASIAN MARKETS


CHINA  – Shanghai Composite starting to lead losers in Global Equities as #GrowthSlowing accelerates on the downside (down another -1.6% overnight; down -9.2% since beginning of May) – we highly doubt Bernanke or Geithner have a central plan for China, but you never know…

 

INDIA – Keynesian economic disasters tend to end with currency debauchery, then local crisis – India’s Rupee is in the middle of one of those and it’s a huge problem domestically as inflation is priced in local FX; but do not worry, India is now saying they are unveiling a “dozen steps to save the Rupee” – almost like a Tony Robbins thing I guess…

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

The Hedgeye Macro Team



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Who Knows?

“Who knows, maybe they are much better off the way they are.”

-Mitchell Zuckoff

 

That’s a quote that I underlined this weekend in an unbelievably true WWII story of disaster, discovery, and survival – Lost In Shangri-La, by a professor of Journalism at Boston University, Mitchell Zuckoff.

 

Since last Thursday I’ve been lost in my own cash position. It’s weird, people keep asking me when and where I am going to put some cash to work. Who Knows? I’m in no hurry. All I can tell you is that I am getting longer of books, in US Dollars.

 

If you can tell me, precisely, how this all ends (other than not well), I’ll have to risk manage the timing of your view. These markets are as volatile and reactionary as the central planners who are attempting to “smooth” them.

 

Back to The Global Macro Grind

 

I have no idea what risk management moves I am going to make each and every day. I wake-up in the morning, put one shoe on at a time, then grind through the process. Embracing the uncertainty of what Mr. Market is going to signal is what I do.

 

Last week’s uncertainty was solely concentrated on 1 central planning event – Ben Bernanke’s presser. After he didn’t deliver the drugs, the Dollar went straight back up – and everything big beta priced in US Dollars went straight back down.

 

Here’s how that looked week-over-week:

  1. US Dollar Index = +0.77% (up for the 1st week in 3)
  2. SP500 = down -0.5% (down for the 1st week in 3)
  3. CRB Commodities Index = down -1.8%
  4. WTIC Oil = down -5.2% (crashing, down -27% since February)
  5. Gold = down -3.9% (testing down for 2012 YTD)
  6. Russian stocks (RTSI) = -5.1%

Russian stocks? Yep. Russian stocks have been crashing alongside the price of The Petro since March. That’s why we call Russia a Petro-Dollar tape. Get the Petro and the Dollar right, and you’ll get Russian stocks right.

 

Whatever happened to the bull case for “de-coupling”? Is Oil going down because of the Dollar or Demand? They’ve changed their bullish thesis so many times already in 2012 that it’s getting hard to keep track.

 

Who Knows?

 

What I do know is that people who didn’t pay attention to the Correlation Risk in this market are Lost In Q2. Where do we go from here? Do we beg, print, and bail some more? Maybe doing more of the same will work this time? Maybe ‘this time is different.’

 

Right. And Ben Bernanke is going to bailout China this morning too.

 

Chinese stocks have been leading decliners for the last few weeks as Chinese #GrowthSlowing appears to be accelerating on the downside. Last night the Shanghai Composite Index was down another -1.6%. It’s been down -9.2% since the beginning of May.

 

At the beginning of May, there was plenty of opportunity to get out of stocks and commodities. But that’s not how consensus rolls. Instead, those addicted to the Qe drugs keep going back to the same old well of hope.

 

Look at last week’s CFTC Commodities speculation data (ahead of the Fed decision):

  1. Net long contracts on the Commodities basket were up +7% wk-over-wk to 628,540 contracts
  2. Agriculture bets ripped a +13% wk-over-wk move
  3. Gold saw a net long ramp of +5% wk-over-wk to the highest net long (notional) position since May 1st

Go back to May 1st and tell me how buying Gold around $1660 played out. Or go back to the beginning of last week, when these net long contracts perked back up, and tell me how not selling into the expectation of a Bernanke Bailout bounce to $1628 paid.

 

It’s all the same trade, over and over, and over again. With the difference being that this time Ben S. Bernanke’s Fed is out of bullets. Could he poke his head back into our lives in the coming days, weeks, or months? Who Knows. All I can do is proactively prepare for what I can see in front of me and, at the same time, have Mr. Market signal to me whatever else I might be missing.

 

In the US, I’m not missing this week’s Macro Catalyst Calendar:

  1. Monday: US New Home Sales “expected” to be a lofty 346,000 (an acceleration from April’s high, Who Knows?)
  2. Tuesday: US Consumer Confidence (June) “expected” to rise to 63.5 vs 61.9 in May? (Who Knows?)
  3. Wednesday: US Durable Goods (May) “expected” to rise +0.5% vs May (doubt that, but Who Knows?)
  4. Thursday: Will US GDP for Q1 be revised lower than 1.9%? Will Jobless Claims eclipse last week’s high for 2012?
  5. Friday: US PMI for June “expected” to be in-line with May’s 52.7, Who Knows?

All the while, of course, we’ll have the Eurocrats saving the world by piling more debt-upon-debt (EU Summit June 27-28th). Even though the German Parliament needs to ratify anything ESM after the EU Summit (June 29th); and even though the Italians are publically patronizing the Germans ahead of that vote; Who Knows?

 

All I know is that I don’t know until I know. And that’s why, for now, I’m largely in Cash.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, German DAX, and SP500 are now $1, $89.06-94.79, $81.95-82.62, $1.24-1.26, 6075-6235, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Who Knows? - ChartoftheDay

 

Who Knows? - vp 6 25


MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW

Key Takeaways

 

* US/European bank swaps were broadly tighter last week on the heels of favorable Greek elections and Moody's downgrades being less bad than feared. We'd remind investors that (a) even if Greek austerity terms are eased, the rate of contraction in the Greek economy will make compliance nearly impossible, setting the stage for another showdown, and (b) Moody's downgrades have costs. While we saw lots of commentary about funding costs not being affected by the downgrades, the more salient takeaway is that institutions that moved to triple-B should see derivatives flow move away, on the margin.   

 

* Risk took a breather last week as large declines in high yield, MCDX and higher leveraged loan prices were indications that the temporary calm in Europe was enough for a broad-based rally. Interestingly, the one measure you'd have expected to contract actually expanded: Euribor-OIS.

 

* The 2-10 spread widened modestly WoW. We expect this increase to be short-lived as the the Fed extended Operation Twist on Wednesday, which will put downward pressure on the long-end of the curve. 

 

* Looking at the week ahead, the setup in the XLF in the short term is roughly even, with 2% upside to $14.62 and 2.5% downside to $13.98. 

 

Financial Risk Monitor Summary  

• Short-term(WoW): Positive / 5 of 12 improved / 0 out of 12 worsened / 8 of 12 unchanged  

• Intermediate-term(WoW): Neutral / 3 of 12 improved / 3 out of 12 worsened / 7 of 12 unchanged  

• Long-term(WoW): Positive / 5 of 12 improved / 2 out of 12 worsened / 6 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Summary

 

1. US Financials CDS Monitor – Swaps tightened for 26 of 27 major domestic financial company reference entities last week.   

Tightened the most WoW: JPM, WFC, RDN

Tightened the least/ widened the most WoW: UNM, TRV, AON

Tightened the most MoM: GS, MS, RDN

Widened the most MoM: LNC, UNM, MMC

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - American CDS

 

2. European Financial CDS - 31 of the 39 European financial reference entities we track saw spreads tighten last week. The median tightening was 7.4% and the mean tightening was 1.8%. It's notable that the Spanish banks were the worst performers of the group.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - CDS european

 

3. Asian Financial CDS -  Japanese banks were broadly wider last week, while Indian and Chinese banks tightened. It's interesting to note that Nomura is 383 bps, the widest of any major Japanese Financial Institution.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Asian Financials

 

4. European Sovereign CDS – European Sovereign Swaps were mostly tighter last week. Portugal saw the strongest rally as swaps fell by 195 bps to 847 bps. Spain and Italy tightened by 21 bps and 27 bps, to 570 bps and 510 bps, respectively 

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Sov Table

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Sov CDS 1

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Sov CDS 2

 

5. High Yield (YTM) Monitor – High Yield rates fell 22 bps last week, ending the week at 7.65 versus 7.87 the prior week.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 9.84 points last week, ending at 1654.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - LLI

 

7. TED Spread Monitor – The TED spread rose 0.6 bps last week, ending the week at 38.3 bps this week versus last week’s print of 37.7 bps.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index fell 1.5 points, ending the week at -17.41 versus -15.9 the prior week.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - JOC

 

9. 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 has been moving higher of late for the first time in a long time. It ended the week at 43 bps.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Euribor OIS

 

10. 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. This data shows through Thursday.  

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - ECB facility

 

11. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. Last week spreads tightened 8 bps, ending the week at 153 bps versus 161 bps the prior week.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - MCDX

 

12. Chinese Steel - We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy. We look at the average Chinese rebar spot price. Steel prices in China fell 0.10% last week, or 4 yuan/ton, to 4,075 yuan/ton. Notably, Chinese steel rebar prices have been generally moving lower since August of last year.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Chinese Steel

 

13. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread increased by 8 bps to 137 bps.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.0% upside to TRADE resistance and 2.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - XLF

 

Margin Debt - April: +0.93 standard deviations 

We publish NYSE Margin Debt every month when it’s released. NYSE Margin debt hit its post-2007 peak in April of 2011 at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did last April, it has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May 2011. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. We would need to see it approach -0.5 to -1.0 standard deviations before the trend runs its course. There’s plenty of room for short/intermediate term reversals within this broader secular move. Overall, however, this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  

 

The chart shows data through April. 

 

MONDAY MORNING RISK MONITOR: RISK COOLING OFF FOR NOW - Margin Debt 


Joshua Steiner, CFA

 

Robert Belsky

 

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THE WEEK AHEAD

The Economic Data calendar for the week of the 25th of June through the 29th 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 - weeek

 


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.

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