The Economic Data calendar for the week of the 5th of November through the 9th 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.
Takeaway: PMI Manufacturing and confidence figures from the Eurozone confirm a continued downturn.
Positions in Europe: Long German Bonds (BUNL)
Asset Class Performance:
This week it’s worth noting that despite signals from some analysts of “green shoots” and optimism that the Eurozone will find a path forward, the data continues to indicate that the Eurozone has not found a bottom. A look at the PMI Manufacturing figures out this week (Services come out next week and may be slightly higher) indicate levels that are both comfortably below the 50 line indicating contraction and sequentially lower (especially) for the core countries in OCT versus SEPT.
Eurozone Confidence figures showed a similar negative trend, namely declining for a seventh straight month in the October figures. Given that the largest business and trade partners for European countries are their fellow neighbors, we do not expect one country to sustain a positive growth inflection until the entire region starts to see improvement. That said, Germany remains the “best of the rest” and we currently have a Real-Time position in BUNL to take advantage of this relative strength.
The European Week Ahead:
Monday: Nov. Eurozone Sentix Investor Confidence; Oct. UK PMI Services, Official Reserves, BRC Sales Like-For-Like; Oct. Spain Unemployment
Tuesday: Oct. Eurozone PMI Composite and Services - Final; Sep. Eurozone PPI; Oct. Germany PMI Services - Final; Sep. Germany Factory Orders; Oct. UK NIESR GDP, BRC Shop Price Index, New Car Registration; Sep. Germany Industrial Production, Manufacturing Production; Oct. France PMI Services – Final; Spain Services PMI; Oct. Italy PMI Services
Wednesday: Sep. Eurozone Retail Sales; Oct. Germany Wholesale Price Index (Nov. 7-12); Sep. Germany Industrial Production; Sep. Spain Industrial Output
Thursday: ECB Governing Council Meeting; ECB Announces Interest Rates; AFME 7th Annual European Bond Conference in Brussels; Nov. Eurzone Asset Purchase Target; Sep. Germany Exports, Imports, Current Account, Trade Balance; BoE Announces Rates; UK Asset Purchase Target; Nov. UK Bloomberg Economic Survey; Sep. France Trade Balance; Aug. Greece Unemployment Rate
Friday: Oct. Germany Consumer Price Index – Final; Sep. UK Total Trade Balance; Oct. BoF Business Sentiment; Sep. France Industrial Production, Central Government Balance, Manufacturing Production; Sep. Italy Industrial Production; Oct. Greece Consumer Price Index; Sep. Greece Industrial Production
NOV 12 – Eurogroup Meeting in Brussels
NOV 15 – Catalonia regional election in Spain
NOV 22 – ECB Governing Council Meeting
NOV 27 – AFME 4th Annual Spanish Funding Conference in Madrid
DEC 1 – Beginning of the Russian Presidency of G20
DEC 3 – Eurogroup Meeting in Brussels
DEC 6 – ECB Governing Council Meeting
DEC 12-13 – First public consultation between the Russian government, B20 Coalition and international civil society representatives on G20 agenda for 2013 (in Moscow)
DEC 20 – ECB Governing and General Council Meeting
APR 2013 – Parliamentary elections in Italy
MAY 2013 – Presidential elections in Italy
Greece - Kathimerini discussed how Greece's ruling coalition faces an extremely tense next few days ahead of two key votes in parliament next week. The article highlighted concerns about the rising dissent in the Pasok party that could leave the coalition without sufficient support to pass the austerity and reform measures demanded by the troika. It noted that Prime Minister Samaras is due to meet with his 127 deputies on Monday, ahead of the vote on structural reforms on Wednesday and the vote on the 2013 budget, which will be held at midnight on Sunday, 11-Nov (just ahead of the 12-Nov Eurogroup meeting during which a final decision on Greece is expected).
Italy – Over the weekend former Prime Minister Berlusconi threatened to bring down the technocratic government led by Prime Minister Monti via a no-confidence vote from his People of Liberty party (PDL), the biggest in parliament. Berlusconi noted that, "We have to recognize the fact that the initiative of this government is a continuation of a spiral of recession for our economy. Together with my collaborators we will decide in the next few days whether it is better to immediately withdraw our confidence in this government or keep it, given the elections that are scheduled." While a no-confidence vote would likely force early actions, there were also thoughts that Berlusconi may no longer have enough support within the PDL to bring down the government.
Ireland - Germany has signaled that it is open to a restructuring of the €30B Anglo Irish Bank promissory note to improve the sustainability of Ireland’s adjustment program (rather than tapping the ESM).
Spain - Spain's northern region of Cantabria on Monday became the ninth region to request a credit line, recently established by the central government to cover liquidity needs. It said it would tap the €18B fund for €137M. Recall that other regions have already tapped the credit line for close to €17B.
Greece - Greek 2013 Govt Debt/GDP at 189.1% vs 175.6% in 2012, according to revised Greek Budget.
Netherlands - The incoming Dutch finance minister said on Thursday that “We have agreed to a tight budget and together we are going to implement it. It is a tough package that is going to require sacrifices from everyone in the Netherlands. I see it as my job to keep the finances on the right path.” The government has already agreed to nearly 16 billion euros ($21 billion) in budget cuts.
Slovakia - Prime Minister Robert Fico said on Wednesday that the state will return to having a single, state-run health insurance system and nationalize two private insurers.. "The government that I head rejects the notion of private health insurers making profits from taking public money and then using those profits to realize their ideas of a luxurious lifestyle," Mr. Fico told reporters, saying the newly unified insurance system would be in place by 2014.
Eurozone CPI Est 2.5% OCT Y/Y vs 2.6% September
Eurozone Unemployment Rate 11.6% SEPT vs 11.5% AUG
Germany Retail Sales -3.1% SEPT Y/Y (exp. -1.1%) vs -1.1% AUG
Germany CPI 2.1% OCT Prelim Y/Y (exp. 2.0%) vs 2.1% SEPT
Germany Unemployment Chg 20K OCT vs 12K SEPT
Germany Unemployment Rate 6.9% OCT vs 6.9% SEPT
UK GfK Consumer Confidence -30 OCT (exp. -28) vs -28 SEPT
UK Nationwide House Prices -0.9% OCT Y/Y vs -1.4% September
UK Construction PMI 50.9 OCT vs 49.5 September
UK M4 Money Supply -3.5% SEPT Y/Y vs -4.0% AUG
France Producer Prices 2.9% SEPT Y/Y vs 2.8% AUG
France Consumer Spending -0.3% SEPT Y/Y vs -0.6% AUG
Italy CPI 2.8% OCT Prelim Y/Y vs 3.4% SEPT
Italy Unemployment Rate 10.8% SEPT Prelim vs 10.6% AUG
Spain Total Housing Permits -31.7% AUG Y/Y vs -37.1% JUL
Spain Q3 GDP Prelim -0.3% Q/Q (exp. -0.4%) vs -0.4% [-1.6% Y/Y (exp. -1.7%) vs -1.3%]
Spain CPI 3.5% OCT Y/Y Prelim vs 3.5% SEPT
Spain Retail Sales -12.6% SEPT Y/Y vs -2.0% AUG
Norway Unemployment Rate 3.1% AUG vs 3.0% JUL
Finland Business Confidence -11 OCT vs -8 September
Finland Consumer Confidence -1.6 OCT vs 3.4 September
Sweden Retail Sales 4.6% SEPT Y/Y vs 1.6% AUG
Belgium Unemployment Rate 7.4% SEPT vs 7.4% AUG
Belgium CPI 2.79% OCT vs 2.76% SEPT
Switzerland Retail Sales 5.4% SEPT Y/Y vs 6.0%
Switzerland UBS Consumption Indicator 1.07 SEPT vs 1.02 AUG
Austria PPI 0.7% SEPT Y/Y vs 1.0% AUG
Iceland Unemployment Rate 5.0% in Q3 vs 7.2% in Q2
Ireland Unemployment Rate 14.8% OCT vs 14.8% SEPT
Portugal Consumer Confidence -55.3 OCT vs -51.4 September
Portugal Economic Climate -4.6 OCT vs -4.2 SEPT
Portugal Retail Sales -5.7% SEPT Y/Y vs -6.1% AUG
Portugal Industrial Production -9.2% SEPT Y/Y vs -2.1% AUG
Greece Retail Sales -7.2% AUG Y/Y vs -8.0% JUL
Hungary Unemployment Rate 10.4% SEPT vs 10.4% AUG
Hungary Producer Prices 2.5% SEPT Y/Y vs 5.1% AUG
Romania PPI 6.6% SEPT Y/Y vs 7.2% AUG
Interest Rate Decisions:
(11/1) Czech Repo Rate Announcement CUT from 0.25% to 0.05%
(11/2) Romania Interest Rate Announcement UNCH at 5.25%
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Takeaway: The market is doing precisely what it should here – confuse people.
This note was originally published November 02, 2012 at 12:54 in Macro
POSITIONS: Long Utilities (XLU), Short Industrials (XLI)
The market is doing precisely what it should here – confuse people.
Don’t forget that the market has really only had 1 up day in the last 8, so there’s still plenty of anxiety post The Bernanke Top (SEP14) and a ratty October (Tech -6.3%). We’ve recaptured the TREND (1419) line, but failed at the TRADE (1432) line – so there’s plenty of risk to consider into the Election.
Across our core risk management durations, here are the lines that matter to me most:
In other words, the immediate-term Risk Range is now 1392-1432 (a little tighter day over day, which is bullish) and the trigger line for beta remains 1419.
Strong Dollar (down Gold, Commodity Bubbles, etc.) continues to price in that the media’s political “experts” (polls) may have the Election wrong. Only time will tell. In the meantime, we’ll let the market tell us what to do next.
Keith R. McCullough
Chief Executive Officer
Takeaway: The COO/CFO resignation stinks big time. We did not trust the company's accounting in the first place. Now 30-40% downside is in play.
We’re shorting $GES on today’s intra-day bounce. Quite frankly, with the news that the COO and CFO both resigned we presumed that the stock would get shellacked. This is a company where we’ve never been completely comfortable with its accounting, and in justifying margin levels – even after a 600bp slide to 11% -- in its Europe and Licensing businesses. Michael Prince joined from Nike (Converse) to be COO in November 2010, and CFO Dennis Secor has been with the company through most of the Carlos Alberini days (when the company’s reported numbers were actually headed in the right direction). Having Paul Marciano more directly involved in running this business is not a comforting event as it relates to creating shareholder value.
Yeah yeah…GES looks cheap at 10x next year’s consensus. But (we’ve been saying this a lot lately) valuation is not a catalyst. Margins are now at 11%, and we have more confidence that they see 6% before they see 13% without sacrificing meaningful top line growth. If this name sees 8% margins, we’re looking at about $1.65 in earnings on a negative growth rate (obviously a multiple killer). Give that an 8-10x multiple and you’re looking at a 14-17 stock. That’s 30-40% downside from here.
Takeaway: A demographically-based breakout of the US labor market paints a mixed message for Obama’s odds of reelection.
With the general election only a few days away, it’s natural to analyze today’s Jobs Report with a political lens. In reality, however, we learned from our 10/24 conference call with Professor Ken Bickers of the University of Colorado, most voters tend to make up their minds on the economy well before the final hours of campaigning (likely in the late summer/early fall periods).
Bickers, whose model has accurately forecasted each Presidential election outcome going back to 1980, suggests Romney is likely to win the US Presidency with a demonstrable margin from an electoral college perspective. We’ve posted a link to the presentation below if you have yet to view it:
All that being said however, we are increasingly of the view that domestic economic data warrants unprecedented scrutiny, as headline figures for jobs and GDP have arguably become far more subject to government assumptions about seasonal adjustment effects, the rate(s) of inflation, etc. than in years past. Even taking a careful and consistent eye to the OCT Jobs Report, however, we are of the view that the underlying trends in domestic labor market conditions sequentially improved in OCT:
From a headline perspective, these improvements bode well for President Obama’s reelection chances in pre-election polls. From a analytical perspective, however, there’s little to be gleaned from the OCT Jobs Report as it relates to the actual election next week. Still, the data did improve and is in-line with the general string of sequentially less-bad economic data (particularly on the PMI front) emanating from Europe, Asia and Latin America in the month of OCT.
HOW DOES OBAMA’S BASE FEEL ABOUT FOUR MORE YEARS?
Accepting the following headline figures at face value, we highlight a few critical deltas in President Obama’s key demographics ahead of Tuesday’s election:
Judging by the aforementioned deltas from the start of his presidency, President Obama may find it very difficult to galvanize his voter base in order to get them to support him at the polling booth(s) with the same fervor and magnitude as they did four years ago. That said, however, he just might be able to overcome this non-consensus view that he won’t have nearly as much support in 2012 as he experienced in 2008 from a voter turnout perspective – especially if he is able to adequately assign all of the blame for those post-crisis peaks to George W. Bush and all of the credit for the trend of multi-year improvement to himself.
This we know: Barack Obama is a great politician; the best bet is that he has been able to do so through careful messaging and populist politicking. As such, one can reasonably infer that his base will actually be energized enough to cut into what a minority in the analytical community believe is likely to be a clear advantage for the Republican Party with regards to Tuesday’s voter turnout. That could spell disaster for Mitt Romney’s chances of securing victory, as he likely needs Democrat voter participation to decline demonstrably from 2008 levels to have a reasonable expectation of victory.
As it relates to what to do next from an investment perspective – irrespective of which candidate and Party controls the White House and Congress – please refer to our OCT 18 note titled: “COULD THE ELECTION, THE FISCAL CLIFF AND THE DEBT CEILING ALL BE BULLISH CATALYSTS FOR THE MARKET?” for more details.
Have a great weekend and best of luck to our clients on the East Coast with their respective recovery efforts in the aftermath of Hurricane Sandy.
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