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European Banking Monitor: More Green than Red This Week

Takeaway: Bank swaps continue their march lower.

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 Bank: Broad-based improvement in Europe on the week, inline with Asia and USA.

 

* Euribor-OIS: Had been quietly moving higher, seems to have stabilized in the 11-13 bps range, and is signaling an ongoing stabilization in the interbank risk market.

  

* On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.

 

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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)

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European Financials CDS Monitor – Swaps tightened broadly in Europe last week as 35 of the 37 reference entities we track showed improvement. French, German, Italian, and Spanish bank swaps all showed decent WoW improvement. 

 

European Banking Monitor: More Green than Red This Week  - 55. banks

 

Euribor-OIS spread – The Euribor-OIS spread tightened by less than 1 bp to 12 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: More Green than Red This Week  - 55. 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.  

 

European Banking Monitor: More Green than Red This Week  - 55. facility


IDEA ALERT: SHORTING EZPW

Takeaway: We added EZPW to our list of real time positions on the short side. The December and March comps will be tough.

Gold continues to look terrible based on our Macro Team's outlook. This is a problem for gold-sensitive pawn lenders like EZ Corp. While the company's transparency around the issue has improved, its sensitivity to the problem remains. 

 

In the first chart below we look at the relationship between the year-over-year change in gold prices and the year-over-year change in earnings contribution from gold-related scrap sales. The second chart shows the dynamic on a longer-term basis. Note the tougher comps in their fiscal first and second quarters (the December and March quarters).

 

Interestingly, while gold prices were the initial catalyst, it's clearly now gold volumes that are the real problem. Note the widening divergence in recent quarters. This is attributable to rapidly decelerating volume dynamics. While we're a bit surprised by how rapid the decline in volume has been relative to the theories put forward to explain it, we continue to assume that it's a problem that isn't going away.

 

The other company facing a similar dilemma is Cash America (CSH).

 

IDEA ALERT: SHORTING EZPW - EZPW GOLD VS VOL S

 

IDEA ALERT: SHORTING EZPW - ez slide

 

Over the past few weeks, gold prices have moved lower, closing yesterday at $1,646/oz. For reference, the current gold price is 8.4% lower than the most recent high of $1,797/oz on 10/4/2012. This is a negative development for the payday and pawn lenders.

 

IDEA ALERT: SHORTING EZPW - EZPW Macro

 

IDEA ALERT: SHORTING EZPW - Gold Price Headwind Tailwind

 

Joshua Steiner, CFA

 

Robert Belsky


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 24, 2012


As we look at today's setup for the S&P 500, the range is 31 points or 0.78% downside to 1419 and 1.39% upside to 1450.       

                                                                                                                                                        

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.51 from 1.50
  • VIX closed at 17.84 1 day percent change of 0.96%
  • BONDS – 10yr UST Yield ticks up 1 basis pt to 1.77% this morning (instead of ticking down w/ US Equity futures); the breakout line for UST yields = 1.70% TREND (now support) and we’ll go with the bond market signal on growth all day long vs whatever stocks are doing.

MACRO DATA POINTS (Bloomberg Estimates):

  • 11:30am: U.S. Treasury to sell $32b 3-mo. bills, $28b 6-mo.

GOVERNMENT:

    • Federal offices closed for Christmas holiday
    • President Obama on vacation in Hawaii, attended service yday for U.S. Sen. Daniel Inouye
    • Hagel would be challenging nomination for Defense, Graham says

WHAT TO WATCH

  • Holiday shoppers hit malls amid concerns of slowing economy
  • Online U.S. holiday spending up 16%, Comscore says
  • Groupon made failed bid for online luxury retailer Achica, Telegraph says
  • ‘Hobbit’ top N.A. movie again with $37m in ticket sales
  • U.S. gasoline falls to lowest in year in Lundberg survey
  • U.S. equity exchanges, bond markets have reduced hours today
  • Leveraged loan issuance in U.S. this year hit highest mark since 2007
  • Sony said in talks with state-run fund to sell battery unit
  • Verizon says hacker didn’t release customers’ data: Forbes
  • Pimco’s Bill Gross sees probability of U.S. going over fiscal cliff of >50%
  • Regions Financial probed by SEC, others on loans: WSJ
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Transports, Real Estate
  • Canada Weekly Agendas: Energy, Mining
  • Week Ahead: Fiscal Cliff, U.S. Home Sales, 2013: Dec. 24-Jan. 5
  • NOTE: No U.S. Daybook tomorrow due to Christmas holiday

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – continue to see selling right where it matters on both Brent and WTIC (both continue to fail at my TRADE and TREND lines of resistance); this is ultimately bullish for consumers, globally.

  • Brent Crude Declines a Third Day Amid U.S. Budget Talk Impasse
  • Bullish Wagers Drop to Six-Month Low on U.S. Budget: Commodities
  • Copper Gains in London as Hedge Funds Boost Bets on China Demand
  • German Day-Ahead Power Price Turns Negative Before Holiday
  • Sugar Falls on Signs of Oversupply in Brazil, India; Cocoa Drops
  • EU Carbon Permits Fall as Volumes Shrink Before Public Holidays
  • Palm Oil Advances to Four-Week High on China Demand Speculation
  • Wheat Futures Gain on Russia Frost, U.S. Seen More Competitive
  • SEC Puts Off Decision on Blackrock’s Copper ETF to February
  • Hedge Funds Boost Oil Bets Most in Four Months: Energy Markets
  • Asia Naphtha Crack Gains; PetroChina Buys Jet Fuel: Oil Products
  • Kazakh Wealth Fund Said to Weigh Acquisition of Kazzinc Stake
  • Tiberius Says Active Commodity Fund Gained 2.4% in November
  • Aluminum Canceled Warrants Are at Record High on London Exchange

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


ASIA – on the top-line, Taiwan printed its best Industrial Production growth number in 9 months (+5.9% NOV vs 4.8% OCT) and from a cost of goods/living perspective Singapore reported inflation (CPI) at a 2yr low (3.6% y/y NOV vs 4.0% OCT).  #bullish.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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All Is Calm

“All is calm, all is bright.”

-Garth Brooks

 

One of my favorite holiday history songs is Belleau Wood, by Garth Brooks. It’s a song about a truce between US and German soldiers in 1918. The first WWI Christmas truce came between British and German soldiers in 1914.

 

“Through the week leading up to Christmas, parties of German and British soldiers began to exchange seasonal greetings and songs between their trenches; on occasion, the tension was reduced to the point that individuals would walk across and talk to their opposite numbers bearing gifts.” (Wikipedia, Christmas truce)

 

Then across the frozen battlefield another’s voice joined in…

Until one by one each man became a singer of the hymn.” (Garth Brooks)

 

Back to the Global Macro Grind

 

I’ll keep it relatively tight this morning – just economic data and risk management levels.

 

But first, here’s how I’d summarize our GIP (Growth, Inflation, Policy) model right now:

  1. Globally (across countries in our model), growth has been stabilizing now for almost a month
  2. Inflation continues to deflate, providing the real-time tailwind to this shift from growth slowing to stabilizing
  3. Both Treasury Bond and Gold prices do not like this (they like #GrowthSlowing)

Global Macro Economic data:

  1. Taiwan printed its highest Industrial Production number in 9 months this morning (+5.9% NOV vs +4.8% OCT)
  2. Singapore reported a 2-yr low in Consumer Price Inflation (CPI) this morning (+3.6% y/y NOV vs +4% OCT)
  3. CFTC Futures & Options net long contracts hit a 6 month low (-5.6% wk-over-wk to 758,256 contracts)

That last point is one of the most critical we have been focused on since making our Bubble#3 (Commodities Bubble) call - 1 of our Top 3 Global Macro Themes @Hedgeye for Q42012. It’s also what’s driving the shift in our model from growth slowing to stabilizing.

 

To put the market’s expectations for lower commodity prices in perspective:

  1. Total net long contracts are -43% below their all-time (Bernanke Bubble) peak of September 2012
  2. Gold net long contracts (down -13% last wk to 112,421) hit their lowest level since August 2012
  3. Corn contracts are getting cobbed, down another -22% last week to 175,631 (lowest since July 2012)

Now maybe the Policy to Inflate thing gets plugged back into your life in January, but the probability of Qe6 superimposing new all-time highs for commodity inflation versus those that have been bubbling up for the last decade is relatively low.

 

Across the board, our risk management signals concur:

  1. CRB Commodities Index = 294 (flat last week in an up tape for Global Equities) remains in a Bearish Formation
  2. Gold = down another -2.2% last week to $1657/oz, snapped our long-term TAIL risk line of $1671
  3. Silver = down another -7.1% last week led losers in the commodities complex, followed by Palladium at -4.8%

Yes, this is me pushing my thesis for Strong Dollar = Strong America. With the US Dollar making a series of higher long-term lows (up for 9 of the last 13 weeks), that’s the most bullish thing I can tell you this Christmas. Let free-market prices win the day.

 

But for just one fleeting moment, the answer seemed to clear…

Heaven’s not beyond the clouds, it’s just beyond the fear.” (Garth Brooks, Belleau Wood)

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $106.20-109.59, $3.52-3.58, $79.09-79.99, $1.31-1.33, 1.70-1.85%, and 1, respectively.

 

Merry Christmas and Happy Holidays to you and your loved ones,

KM

 

Keith R. McCullough
Chief Executive Officer

 

All Is Calm - Chart of the Day

 

All Is Calm - Virtual Portfolio


THE M3: S'PORE INFLATION

The Macau Metro Monitor, December 24, 2012

 

 

SINGAPORE'S NOV INFLATION MODERATES TO 3.6% ON-YEAR Channel News Asia

Singapore's inflation moderated to 3.6% YoY in November, down from 4% in October and lower than what economists had expected.  The November core inflation rate which excludes transport and accommodation also fell to 2% last month, from 2.2% in October.  Persistent tightness in the labour market will support wage increases in 2013. 

The central bank has forecast a full-year inflation of slightly above 4.5% this year and between 3.5% and 4.5% in 2013. 



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%
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