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TODAY’S S&P 500 SET-UP – July 9, 2012

As we look at today’s set up for the S&P 500, the range is 14 points or -0.64% downside to 1346 and 0.39% upside to 1360. 











  • ADVANCE/DECLINE LINE: on 07/06 NYSE -1048
    • Down versus the prior day’s trading of -371
  • VOLUME: on 07/06 NYSE 596.39
    • Decrease versus prior day’s trading of -12.82%
  • VIX:  as of 07/06 was at 17.10
    • Decrease versus most recent day’s trading of -2.29%
    • Year-to-date decrease of -26.92%
  • SPX PUT/CALL RATIO: as of 07/06 closed at 2.31
    • Up from the day prior at 1.50 


10yr – US Treasuries have told you all you need to know about growth throughout another US Equity no-volume rally; at 1.51% this morning, the 10yr bond is immediate-term TRADE overbought (we’re long it). New risk range = 1.51-1.62% for the immediate-term as Treasuries remain in a Bullish Formation on the long end. 

  • TED SPREAD: as of this morning 39
  • 3-MONTH T-BILL YIELD: as of this morning 0.07%
  • 10-Year: as of this morning 1.52%
    • Decrease from prior day’s trading at 1.55%
  • YIELD CURVE: as of this morning 1.26
    • Down from prior day’s trading at 1.28 

MACRO DATA POINTS (Bloomberg Estimates):

  • 11 am: Fed to purchase $1.5-2b coupon securities maturing 2/15/2036-05/15/2042
  • 11:30 am: U.S. to sell $30b 3-mo bills; $27b 6-mo bills
  • 11:55 am: Fed’s Williams speaks in Couer d’Alene, Idaho
  • 3pm: Consumer Credit, May, est. $8.5b (prior $6.5b) 


    • House, Senate in session 


  • Euro drops to two-yr low ahead of EU regional finance meeting
  • Alcoa releases earnings after the close
  • Bank of England’s Tucker to testify on Barclays Libor scandal
  • Sony’s ‘Spider-Man’ tops N.A. box office with $65m in sales
  • Boeing set to win GE jet order of 100 narrow-body 737s
  • Farnborough Air Show coverage
  • Monsanto trial against DuPont over Roundup-Ready crops to start
  • Media moguls gather in Sun Valley, Idaho this week
  • China GDP, JPMorgan, Air Show, Hollande: Week Ahead July 9-14 


    • Alcoa (AA) 4:03pm, $0.06
    • WD-40 (WDFC), 4pm, $0.82
    • Pricesmart (PSMT) After-mkt, $0.59 


  • Chavez Buys Enemy U.S.’s Fuel While Lauding Iran: Energy Markets
  • Alcoa Profit Seen Plunging 81% on Aluminum Smelting Surplus
  • JPMorgan Probe Shows FERC Priority on Policing Energy Markets
  • U.S. Corn Growers Farming in Hell as Heat Spreads: Commodities
  • Oil Rebounds From Biggest Drop in Two Weeks as Norway Halt Looms
  • Corn Jumps While Soybeans Rally to 2008 High on U.S. Dry Weather
  • Gold Set to Decline a Fourth Day as Stronger Dollar Cuts Demand
  • Copper Advances 0.6% to $3.4305 a Pound in New York Trading
  • LME Shareholders to Vote on $2.2 Billion Takeover on July 25
  • El Nino May Widen Indian Rain Deficit as U.S. Flood Risk Gains
  • Palm Oil Gains as Concerns Mount Over El Nino, U.S. Heat Wave
  • Total Said to Buy 35,000 Tons of Naphtha From Bharat Petroleum
  • Farms Break Subsidy Reliance With Record Exports: BGOV Barometer
  • World to Dodge El Nino’s Spur to Cost of Food: Chart of the Day
  • Rain Deficit in India Narrows to 25% as Monsoon Gathers Pace
  • Rubber Declines Most in Two Weeks as Demand Concerns Strengthen 










SPAIN – stocks and bonds are just a mess; after failing at TREND line resistance last week, the IBEX leads losers this morning, -1.6%, remaining solidly in crash mode at -25% from its YTD high. Central planners cannot change growth slowing; instead, more debt schemes perpetuate it.






CHINA – growth slowing in China is evidently not yet fully priced in; the Shanghai Comp got crushed again last night -2.4% and the Hang Seng was down -1.9% after failing at intermediate-term TREND resistance (20,091). Chinese inflation (CPI) hit a 29mth low in June (that’s good, but it all came pre the +9% rip in Commodities into 1st wk of July).










The Hedgeye Macro Team

The Week Ahead

The Economic Data calendar for the week of the 9th of July through the 13th 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 - TheWeek

HedgeyeRetail Visual: Unemployment: Who’s to Benefit?

The unemployment rate continues to improve relative to last year across all age groups. The fastest improving demographic is the 25-34 age group which is net positive for much of discretionary retail, while the weakest improvement is in the older consumer (55 and older), who spends less on the margin in the mall and online. 


HedgeyeRetail Visual: Unemployment: Who’s to Benefit? - COTD

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.

Industrial Indicator: Commercial Printing Short-Squeeze Amid Secular Decline

Chart of the Day

Commercial Printing in Secular Decline, Stocks a Potential Short Squeeze

  • Commercial Printing has been the top performing Industrials sub-industry over the past 30 days, in what appears to be a bit of a short squeeze.  Given that short interest is *one-third* of the float in names like RRD and QUAD, this could well continue.
  • Substitution of digital media for print media has left the commercial printing industry with chronic excess capacity – it is a current example of an industry in decline.
  • The industry is fragmented, impeding capacity rationalization, and facing a host of substitutes for printed materials including online bill pay, reduced mail volumes, e-books, PDAs (fewer printed calendars) and online magazine/blogs.
  • A more significant squeeze in RRD or QUAD could present an interesting entry point for shorts in this troubled industry.

 Industrial Indicator: Commercial Printing Short-Squeeze Amid Secular Decline - commercial printing capacity utilization


Sector Comment:  Navistar’s call this morning raised more questions than answers for us.  It seems that it did for the market as well.  We expect to launch our next detailed “black book” on commercial trucking in coming weeks and will have more to say then.  For now, we again note that NAV has significant liabilities (pension and debt) that make it less “cheap” than it feels relative to better organized competitors.


Reminder:  Expert Call This Wednesday at 1PM

We have an expert call coming up on July 11th at 1PM to discuss AMR/US Air and other regulatory matters.  Our expert will be Lisa Harig, a Partner at McBreen & Kopko and head of the firm’s Washington D.C. office.  She is a former in-house counsel for Trans World Airlines, Inc. and BearingPoint, Inc.  Ms. Harig represents domestic and international clients, including airlines and manufacturers.  Her practice focuses on a wide range of corporate, transactional, compliance and regulatory matters, including representation before the U.S. Department of Transportation and Federal Aviation Administration.  Please contact us or your Hedgeye Sales representative to participate.   


Industrial Indicator: Commercial Printing Short-Squeeze Amid Secular Decline - perf 7612



Unemployment Chart of the Day

Unemployment Chart of the Day - hedgeye unemploymentrate



Jumping back to the JUN jobs report, the key takeaway from our analysis is that the US labor market remains firmly stuck in the mud, failing to improve or outright deteriorating on a number of key metrics:


•           Non-Farm Payrolls, Net of Birth-Death Adjustment YoY: -43k from +138k

•           Headline Unemployment Rate SA: flat at 8.2%

•           Hedgeye-Adjusted Unemployment Rate SA (10YR Average Labor Force Participation Rate): flat at 11%

•           Unemployed-to-Working-Age-Population Ratio SA: flat at 41.4%

•           Labor Force Non-Participation Rate SA: flat at 36.2%


Not that anyone was expecting a major step forward, but it’s clear that the data firmly implies the US labor market remains far worse off than the headline Unemployment Rate (SA) of 8.2% would suggest. You know conditions are not good when an 8.2% Unemployment Rate is being touted as an indicator of “strength” on the incumbent’s campaign trail. Perhaps the populace buys it, perhaps they don’t; we’ll see come NOV 6th. For now, a rigorous analysis of the data (as opposed to overreacting to the headline print) would suggest that Obama’s odds of reelection may be less than indicated by various polls, as well as the latest reading from our Hedgeye Election Indicator.


Weekly European Monitor: Changing Tides

-- For specific questions on anything Europe, please contact me at to set up a call.


No Current Positions in Europe


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed up +1.3% week-over-week vs +1.9% last week. Top performers: Ukraine +7.5%; Greece +4.5%; Czech Republic +3.4%; Denmark +3.2%; Russia (MICEX) +2.0%; UK (FTSE) +1.6%. Bottom performers: Cyprus -9.2%; Spain -5.1%; Italy -3.8%; Hungary -1.4%; Austria -0.9%; Germany -0.1%.
  • FX:  The EUR/USD is down -3.14% week-over-week vs +0.69% last week.  W/W Divergences: RUB/EUR +1.71%; GBP/EUR +1.65%; SEK/EUR +1.56%; NOK/EUR +0.31%; CHF/EUR +0.06%; DKK/EUR -0.05%; PLN/EUR -0.25%; CZK/EUR -0.60%; HUF/EUR -1.22%.
  • Fixed Income:  10YR Yields busted back out for yet another week for the peripheral countries following the market’s optimism after last Friday’s EU Summit.  Week-over-week, Spain’s 10 YR yield saw the biggest move of +67bps to 7.00%. Italy gained +22bps to 6.04% and Portugal gained +5bps to 10.21%. Conversely, French yields fell -28bps to 2.41%, followed by Germany at -20bps to 1.38% and Greece declined -10bps to 25.73%.   

Weekly European Monitor: Changing Tides - aaa. yields


Changing Tides:

It was a week ago today that markets rallied hard on the EU Summit “conclusions”. Last week’s note titled “Not in my Lifetime” pointed out just how little substance the three paragraph statement actually contained. In this vein, there’s very little from a policy perspective that needs updating versus last week, because frankly Eurocrats don’t move that fast and as we’ve stated hundreds of times over, there’s a long road ahead for Europe to fix its sovereign and debt imbalances, and still a looming question if the Eurozone can sustain its current 17 member fabric. To the latter point, we expect Eurocrats to throw every kitchen sink and scrap for every available band-aid to keep their jobs and the structure together.


As we can see from peripheral yields and CDS spreads, as well as equity performance, there was quite a turn in sentiment this week? In particular, Spain’s 10YR yield is back up to that dangerous 7% mark.  As a continuation of our work, the two main issues right here and now are the scope of the ESM (how it’s directed at bank recapitalizations and the implications if lending is through the sovereign, including with existing EFSF funds) and the scope of a pan-European banking authority (how’s it structured and what banks are included?). Yesterday in the ECB press conference President Mario Draghi gave little color on a European banking authority, including if the ECB would be a backstop for the future facility (see yesterday’s note July ECB Presser YouTubed).


Yesterday’s interest rate cuts from the ECB may prove marginally beneficial, yet again it’s a stretch to think that the cuts will have any impact on the existing sovereign and banking imbalances. After all, the LTROs proved highly ineffective. One point to stress, that the market may be looking towards, is any increased lending given the drop in the deposit rate to 0.00%, which is in essence begging banks to do something with their money besides park it for zilch. We expect the credit flow to broadly remain constrained for a protracted period as fundamentals and confidence continue to be bombed out.




Below is an updated EUR/USD price level chart. Our immediate term TRADE and intermediate term TREND support level is $1.22 and resistance is $1.25. Our call is that if $1.22 breaks, look out below! However, we’re not EUR parity folks because we see Eurocrats stepping in to prevent it.


Weekly European Monitor: Changing Tides - AAAA. EURO


Call Outs:

Germany - Chancellor Merkel’s approval rating rises to 66% = highest level since 2009 after last week’s EU Summit.


France - French Finance Minister Pierre Moscovici cut the government's growth forecasts to +0.4% in 2012 (vs the prior forecast of +0.5%) and between +1% and +1.3% for 2013 (versus estimate of +1.7%).


Cyprus - Officially becomes the EU president (it rotates every 6 months).


France - Needs as much as €43 billion in savings this year and next, the national auditor said, setting the stage for budget cuts by Hollande.


Greece - The new government dropped a plan to seek softer terms for its second bailout following warnings that it would be rejected by international lenders. Finance minister Yannis Stournaras said, "The program is off-track and we can't ask for anything from our creditors before we get it back on course."


Italy - The government approved €4.5B ($5.58B) in spending cuts for 2012, aimed at slashing the size of Italy's public sector and delayed a new tax increase until after the first half of 2013. The size of the cuts is slightly larger than the €4.2B in cuts the government originally projected for this year. The cuts for 2013 are projected at €10.5B, and €11B for 2014.


Ireland - The country returned to the debt markets this week for the first time since its bailout in September 2010. It sold €500 million of 3-month bills, in line with the target, at an average yield of 1.8%.


Slovenia - According to Bloomberg, Slovenia is headed toward becoming the 6th Eurozone nation to seek a bailout.


Spain - Spanish Economy Minister Luis de Guindos said Madrid will pass additional measures in order to achieve its annual deficit target. (Spain has said that it will cut its deficit to 5.8% of GDP in 2012 from 8.9% last year). Unconfirmed sources say Spain's government is putting finishing touches to an up to €30 billion package of spending cuts and tax hikes to help it meet this year's deficit targets, which could be announced next week.



Risk Monitor:

Like sovereign yields, sovereign CDS were mixed on the week. Portugal rose +45bps to 853bps, followed by Spain at +16bps to 568bps. Italy gained +6bps to 514bps.  For a second straight week Ireland saw the largest decline in CDS w/w at -49bps to 533bps, followed by France -8bps to 185bps and Germany -4bps to 100bps. 


Weekly European Monitor: Changing Tides - aaaa. cds   a


Weekly European Monitor: Changing Tides - aaaa. cds   b


Data Dump:

Weekly European Monitor: Changing Tides - aaa. pmis


Eurozone PMI Composite 46.4 JUN (exp. 46) vs 46 MAY

Eurozone Unemployment Rate 11.1% MAY vs 11% APR

Eurozone PPI 2.3% MAY Y/Y (exp. 2.5%) vs 2.6% APR   [-0.5% MAY M/M vs 0.1% APR]

Eurozone Retail Sales -1.7% JUN Y/Y (exp. -1%) vs -3.4% MAY


Germany Industrial Production 0.0% MAY Y/Y (exp. -1.2%) vs -0.6% APR   [1.6% MAY M/M (exp. 0.2%) vs -2.1% APR]

Germany Factor Orders -5.4% MAY Y/Y (exp. -6.0%) vs -3.4% APR


UK PPI Input -2.2% JUN M/M (exp. -2.1%) vs -2.6%   [-2.3% JUN Y/Y (exp. -2.2%) vs 0.0% MAY]

UK PPI Output -0.4% JUN M/M (exp. -0.2%) vs -0.2% MAY (fall most since 2008 in June)   [2.3% JUN Y/Y (exp. 2.4%) vs 2.9% MAY]

UK PMI Construction 48.2 JUN (exp. 52.9) vs 54.4 MAY

UK M4 Money Supply -4.1% MAY Y/Y vs -4.0% APR

UK Halifax House Prices -0.5% JUN Y/Y (exp. -0.8%) vs -0.1% MAY

UK New Car Registrations 3.5% JUN Y/Y vs 7.9% MAY


Italy Unemployment Rate 10.1% MAY vs 10.2% APR


Spain Industrial Output WDA -6.1% MAY Y/Y vs -8.3% APR (falls for the 9th month)

Spanish Registered Unemployment -98.8k in June (est -51.6k) ahead of tourist season

Portugal Industrial Sales -1.3% MAY Y/Y vs -7.0% APR


Switzerland CPI -1.2% JUN Y/Y vs -1.1% MAY

Switzerland Retail Sales 6.2% MAY Y/Y vs 0.2% APR


Belgium Unemployment Rate 7.2% MAY vs 7.4% APR

Holland CPI 2.5% JUN  Y/Y vs 2.5% MAY

Sweden Service Production 1.9% MAY Y/Y (exp. -0.4%) vs -0.7% APR

Norway Industrial Production 13% MAY Y/Y vs 7.5% APR

Norway Industrial Production Manufacturing 1.7% MAY Y/Y vs 1.9% APR

Norway Credit Indicator Growth 6.7% MAY Y/Y vs 6.7% APR


Ireland Consumer Confidence 62.3 JUN vs 61.0 MAY

Ireland Unemployment Rate 14.9% JUN vs 14.7% MAY

Ireland Industrial Production 4.4% MAY Y/Y (exp. 2.8%) vs 2.2% APR

Ireland New Vehicle Licenses 7320 JUN vs 9895 MAY


Interest Rate Decisions:

(7/4) Riksbank Interest Rate UNCH at 1.50%

(7/5) BOE Interest Rates UNCH 0.50%

(7/5) BOE Asset Purchase Program increased 50B Pounds to 375B Pounds

(7/5) ECB CUT the main refinancing operations by 25bps to 0.75%; CUT the interest rates on the marginal lending facility by 25bps to 1.50%; and CUT the deposit facility 25bps to 0.00%.



The Week Ahead:


Sunday: Jun. UK Employment Confidence


Monday: Aim to present a memorandum of understanding a European bailout of 100B Euros for Spain to the Euro group of Finance Ministers; Eurozone Sentix Investor Confidence; Jun. UK BRC Sales Like-For-Like, RICS House Price Balance; Germany Wholesale Price Index (Jul. 9-12); May Germany Exports, Imports, Current Account, Trade Balance; Jun. France BoF Business Sentiment; Jun. Greece Consumer Price Index


Tuesday: Jun. UK NIESR GDP Estimate; May UK Industrial Production, Manufacturing Production, Visible Trade Balance, Trade Balance Non EU, Total Trade Balance; May France Industrial Production, Manufacturing Production; May Italy and Greece Industrial Production


Wednesday: Jun. Germany Consumer Price Index – Final; May France Current Account; May Spain House Transactions


Thursday: Jun.  Eurozone ECB Monthly Report Published; May Eurozone Industrial Production; Jun. France CPI; Apr. Greece Unemployment Rate


Friday: Jun. Spain and Italy CPI – Final


Extended Calendar Call-Outs:


19 July: ECB governing council meeting


18-19 October: Summit of EU Leaders



Matthew Hedrick

Senior Analyst