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Ideas Alert: BUNL, EWI, FXE; ahead of ECB and BOE Decisions

On Friday (7/27) Keith made a number of trades in our Hedgeye Virtual Portfolio related to Europe. He shorted the EUR/USD via the etf FXE, shorted Italy via EWI (note that on Friday the short selling ban on stocks trading on the FTSE MIB was extended to September 14th), and went long German Bunds (BUNL). 


Keith’s trading calls are tactically taking advantage of the current price dislocation and not major changes in our broader theses across Europe. We saw these “dislocations” into and out of ECB President Mario Draghi’s comment on Thursday that “the ECB is ready to do whatever it takes to preserve the euro.”


In short we believe Draghi’s “whatever” comment could boost broader European capital markets, including the EUR/USD, going into Thursday’s ECB meeting because Draghi has put himself in a box in which he has to deliver to the market something on the monetary and/or fiscal fronts.


However, we expect any announcement from Draghi to under-deliver based on market expectations for a bazooka. Specifically, we think Draghi should reengage the SMP, a positions the Germans are still against. We see a very low probability of another long-term LTRO being issued (due to the lack of success the last two had) and we see a split probability on a 25bp cut to the main interest rate. Yet even if the rate was cut, we’d expect it to have very little lasting impact on the markets.


Keith covered FXE today in the Virtual Portfolio to take a gain on the short side. Our immediate term TRADE levels for the EUR/USD are $1.20-1.23. As we mention above, we expect Draghi’s “whatever” comment to put support in the cross until Thursday morning’s ECB press conference at 8:30am EST.


As it relates to the BOE’s interest rate decision on Thursday, we expect no change in the main rates, and no additional asset purchases following a £50 Billion increase on 7/5 when the Bank last met (to take total purchases to £375 Billion), despite continued challenged economic fundamentals.


Below we show our levels with Keith’s commentary on all three securities recently traded:


EWI - I've seen some ridiculous 1-2 day moves in the last 5yrs. This one might take the cake. Italy right back to immediate-term TRADE overbought.


Ideas Alert: BUNL, EWI, FXE; ahead of ECB and BOE Decisions - ccc. italy


BUNL - German Bunds are immediate-term TRADE oversold within their bullish intermediate-term TREND.


Ideas Alert: BUNL, EWI, FXE; ahead of ECB and BOE Decisions - ccc. germany bunl


FXE - Whatever it takes right back at you Mr. Draghi. Re-shorting the Euro at the top end of our immediate-term TRADE range (of $1.23).


Ideas Alert: BUNL, EWI, FXE; ahead of ECB and BOE Decisions - ccc. eur


Matthew Hedrick

Senior Analyst

OLYMPICS: Retail In The Mix

The2012 Olympics have been nothing but trouble for everyone involved. From the city of London’s transit issues to Michael Phelps’ inability to perform to NBC’s broadcasting problems, it’s been a disaster from the get go. The same goes for retail sales in London with respect to Olympics gear and apparel.


Manufacturers are doing well –names like Nike (NKE), Ralph Lauren (RL), Adidas (ADS) and Under Armour (UA). Other brands like COH, GES, and ANF are likely not faring as well. Below is a visual we did back in June analyzing NKE stock action relative to the broader market headed into and out of the Olympics.


OLYMPICS: Retail In The Mix - NKE olympicspread


CONCLUSION: We continue to flag the risk that Growth Slowing’s Slope is accelerating to the downside as prices of raw materials race higher alongside asset prices broadly amid heightening speculation on Fed/ECB Policies to Inflate.


In kicking off what will be a very busy week for global GROWTH/INFLATION/POLICY data, the Bank of [South] Korea’s AUG Business Conditions Survey left much to be desired on the growth front. The survey results, which are a 1MO-forward look at expectations for operating conditions, literally tanked: 

  • Manufacturing: 70 from 81; lowest reading since MAY ’09; steepest MoM decline since DEC ’08
  • Non-Manufacturing: 69 from 76; lowest reading since APR ’09; steepest MoM decline since NOV ‘08 



While the absolute level of the indices are worrisome indeed (lowest readings since the thralls of the Great Recession), the sharp acceleration to the downside in the slopes of the lines is quite frightening indeed. And since the work of renowned behavioral psychologists such as Dr. Richard Peterson and Dr. Daniel Kahneman has taught us that short-term forecasts are typically not much more than an extrapolation of recent trends, these forward-looking AUG numbers may be a leading indicator for a messy week of Asian/Latin American JUL/2Q GROWTH data. We list the most noteworthy releases below (email us for the full list):


MON (tonight):

  • South Korea: JUL Industrial Production
  • Japan: JUL Manufacturing PMI; JUL Employment Report
  • Taiwan: 2Q GDP
  • Singapore: 2Q Unemployment Rate


  • South Korea: JUL Trade Data
  • China: JUL Manufacturing PMI; JUL HSBC Manufacturing PMI
  • Indonesia: JUL Manufacturing PMI; JUL Consumer Confidence
  • Australia: JUL Manufacturing PMI
  • Taiwan: JUL Manufacturing PMI
  • Vietnam: JUL Manufacturing PMI


  • India: JUL Manufacturing PMI
  • Singapore: JUL Manufacturing PMI
  • Australia: 2Q Retail Sales
  • Brazil: JUL Manufacturing PMI; JUL Trade Data
  • Mexico: JUL Manufacturing PMI; JUL Services PMI


  • China: JUL Services PMI; JUL HSBC Services PMI
  • Hong Kong: JUL Manufacturing PMI
  • Australia: JUL Services PMI
  • Thailand: JUL Consumer Confidence


  • India: JUL Services PMI
  • Brazil: JUL Services PMI
  • Mexico: JUL Consumer Confidence


All told, we continue to flag the risk that Growth Slowing’s Slope is accelerating to the downside as prices of raw materials race higher alongside asset prices broadly amid heightening speculation on Fed/ECB Policies to Inflate. On the strength of said asset price inflation, South Korea’s benchmark KOSPI equity index, like many other equity indices globally, is bumping up against critical resistance levels as indicated in the chart below. Absent confirmation of a true quantitative breakout, we view this month-end hope rally as exactly that – hope.




Best of luck out there this week.


Darius Dale

Senior Analyst

European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever”

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:


* ECB President Mario Draghi's announcement last week that "The ECB is ready to do whatever it takes to preserve the euro" triggered a broad-based rally in European bank equities and swaps. US Global banks followed suit. It's interesting to note, however, that Greek banks continued to widen out, suggesting that Greece leaving may not be part of Draghi's preservation plans.



 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





Security Market Program – For the twentieth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 7/27, to take the total program to €211.5 Billion. We believe that in this Thursday’s ECB interest rate meeting, Draghi will be forced to issue some sort of monetary or fiscal policy following his comments that he’ll do “whatever” it takes to support the currency. We think that could likely include a reengagement of the SMP. We see less probability of another LTRO and think that while a 25bp cut to the main interest rate could be likely, it will have very little lasting impact on the markets.  


European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. smp


European Financials CDS Monitor Spanish, German, French and Italian banks tightened.  Meanwhile, Greek banks widened. Overall, 28 of the 39 European financial reference entities we track saw spreads tighten last week.


European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. banks


Euribor-OIS spread – The Euribor-OIS spread widened by 1 bps to 36 bps. 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.


European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. euribor


ECB Liquidity Recourse to the Deposit Facility – The sharp drop from three weeks earlier reflects the ECB's deposit rate change to 0.0%. Since that time, the index has been roughly flat.  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.  


European Banking Monitor: Euro Banks Rally on Draghi’s “Whatever” - aaa. ecb liquid.

Moonshot: SP500 Levels, Refreshed

POSITIONS: Short Industrials (XLI)


Maybe I could have risk managed it better, maybe I couldn’t have. Everything becomes clearer in hindsight. The only thing I can continue to do is learn from my mistakes.


We didn’t make any mistakes on both how early and consistent we’ve been on #GrowthSlowing. That, I guess, is now the bull case. The faster GDP growth slows, the louder the #BailoutBull gets. So, you could have been bullish on growth then (Q1), and bailouts now (Q3) – bottom line is that perma bulls are always bullish, regardless of their mistakes.


Across our risk management durations, here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance = 1392
  2. Intermediate-term TREND support = 1376
  3. Immediate-term TRADE support = 1363 

In other words, we can all pretend everything will end just fine, until 1376 snaps again. If it doesn’t, I guess we are going to suspend economic gravity and fly to the moon.


Just not sure how we get down once we get there,



Keith R. McCullough
Chief Executive Officer


Moonshot: SP500 Levels, Refreshed - SPX


 July GGR growth forecast of -2% to flat



Average daily table revenues (ADTR) dropped 16% YoY due primarily to the Typhoon that hit one week ago today.  Ferry service was out all day Monday and most of Tuesday.  This was the highest rated typhoon to hit Hong Kong/Macau in over 10 years.  With only 2 days left in the month, we are forecasting HK$23.0-23.5 billion in GGR (including slots) which would represent a decline of 2% to flat YoY. 




LVS should cap its first successful month since the opening of SCC with market share over 21%, probably hold aided to some extent but still likely a significant improvement even on a hold-adjusted basis.  We would expect normalized share at 19-20% until the additional rooms/amenities open at SCC on September 20th when share should be consistently over 20%.  Wynn and MGM continue to lag trend, although MGM did show MTD improvement over last week.



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