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Gold In Bearish Formation

Gold has been selling off since September when it hit $1900/oz. As we move from "growth slowing" to "growth stabilizing," both commodities and gold have continued to deflate. From a long-term perspective, we think the gold bubble has already popped. From a quantitative setup, gold is in a bearish formation; we’ll short gold (GLD) and gold miners (GDX) as long as our models tell us to do. Across our core risk management durations in Gold, here are the lines that matter to us most:

 

1.       Intermediate-term TREND resistance = 1699

2.       Long-term TAIL resistance = 1671

3.       Immediate-term TRADE resistance = 1665

 

Gold In Bearish Formation - gold


Improvement In Europe

Following the fiscal cliff resolution in the United States, credit default swaps (CDS) on European banks are tightening across the board save for Greece. Italian and Spanish banks were the most improved, while German and French banks were close behind. Additionally, the Basel Committee has imposed a four-year delay for European banks to improve their liquidity requirements, which would have tied up a large amount of capital at financial institutions. This is an additional tailwind in the near-term for European banks.

 

Improvement In Europe - 33  banks

 

Improvement In Europe - image001


European Banking Monitor: Bank Swaps Reflect Fiscal Cliff Resolution

Takeaway: Bank Swaps Reflect Fiscal Cliff Resolution; Extension of Basel liquidity requirements is another tailwind.

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 Financial CDS - With the exception of Greece and one Spanish Bank (Caja de Ahorros del Mediterraneo), European bank swaps were tighter across the board on US fiscal cliff resolution. Italian and Spanish banks were the most improved, while German and French banks were close behind. We’d note that the Basel Committee’s decision to award banks a four-year delay to meet international liquidity requirements may provide a near-term tailwind for the banks and their risk profiles.

 

* 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

 

 

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European Financials CDS Monitor – With the exception of Greece and one Spanish Bank (Caja de Ahorros del Mediterraneo), European bank swaps were tighter across the board on US fiscal cliff resolution. Italian and Spanish banks were the most improved, while German and French banks were close behind.

 

European Banking Monitor: Bank Swaps Reflect Fiscal Cliff Resolution  - 33  banks

 

Euribor-OIS spread – The Euribor-OIS spread widened by roughly half a basis point to 12.5 bps in the latest week. 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: Bank Swaps Reflect Fiscal Cliff Resolution  - 33. 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: Bank Swaps Reflect Fiscal Cliff Resolution  - 33. facillity


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EMPLOYMENT DATA CONFIRMING BEARISH CASUAL DINING STANCE

The primary takeaway from this post is the most important macro indicators are continuing to confirm our bearish stance on casual dining. 

 

Employment trends within the industry suggest a possible sequential deceleration in same-restaurant casual dining sales. The deceleration of employment growth within casual dining versus quick service and the broader leisure and hospitality industry is worth noting.

 

Knapp Track Casual Dining sales data track BLS employment growth data for the full-service and leisure and hospitality industries.  Within casual dining, we are bearish on DRI, BWLD, and TXRH

 

EMPLOYMENT DATA CONFIRMING BEARISH CASUAL DINING STANCE - knapp comps vs full service employment

 

EMPLOYMENT DATA CONFIRMING BEARISH CASUAL DINING STANCE - leisure   hospitality vs full service employment growth

 

 

Employment by Age

 

Employment growth by age cohort implies that quick service restaurants are benefitting from strong employment growth among core consumers while casual dining’s struggles are being caused, at least in part, by decelerating employment growth of one of the sector’s core demographics. 

 

The chart below illustrates a strong end to the year for employment growth among the younger age cohorts.  Job growth in the 20-24 years of age cohort remained in the 3% range while growth in the number of employed 23-34 year olds accelerated to 1.2% in December from 0.7% the month prior.  This is positive data point for QSR. 

 

Employment growth among 55-64 year olds remains robust, accelerating to 5.6% in December, but softer trends in the 45-54 years of age cohort is a concern for casual dining. 

 

EMPLOYMENT DATA CONFIRMING BEARISH CASUAL DINING STANCE - Employment by Age

 

 

Industry Hiring

 

If we assume that hiring within the restaurant industry serves as a decent proxy for operator confidence, it seems that QSR operators have a very different outlook than casual dining operators.

 

The continuing sideways trajectory of Leisure & Hospitality employment growth suggests that employment growth in limited service restaurants could be overstretching at this point.  However, with consumers trading down and quick service chains investing in enhancing the consumer’s experience at their restaurants, it is difficult to come to a firm conclusion.

 

Sequential Moves

  • Leisure and Hospitality: Employment growth at 2.38% in December (+1.7 bps seq acceleration)
  • Limited Service: Employment growth at 4.29% in November (-5.3 bps seq deceleration)
  • Full Service: Employment growth at 1.93% in November (-47.8 bps seq deceleration)

EMPLOYMENT DATA CONFIRMING BEARISH CASUAL DINING STANCE - restaurant employment

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 


Do You Believe? SP500 Levels, Refreshed

Takeaway: My sense is enough people missed the biggest up week for stocks in a year for me to believe just about anything.

POSITIONS: 11 LONGS, 8 SHORTS

 

Stocks got immediate-term overbought as bonds got oversold on Friday. Immediate-term TRADE overbought is as overbought does, so just be smart where you make those gross and net exposure decisions. Timing matters.

 

Do you believe we make a higher-high versus 1466? Or, maybe a better question, did you believe that we could test 1466 before we did? My sense is enough people missed the biggest up week for stocks in a year for me to believe just about anything.

 

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

 

  1. Immediate-term TRADE overbought = 1482
  2. Immediate-term TRADE support = 1439
  3. Intermediate-term TREND support = 1419

 

In other words, the SP500 could drop 20 handles from today’s intraday low as fast as it could tack on another 20 from here. What do you do with that? I say you keep moving and risk manage this tape with a bullish bias until the research factors (#GrowthStabilizing) and/or risk signals change.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Do You Believe? SP500 Levels, Refreshed - SPX


MACAU: A December To Remember

December was an impressive month for Macau with high VIP gold and strong gross gaming revenue. With 20% hold growth on a year-over-year basis and mass market growth up 32%, it was a month that really paid off for Macau operators with the exception of Wynn Resorts (WYNN). Sands China’s (LVS) properties generated the best year-over-year growth at 52% but MGM’s 34% growth was surprising although certainly hold-aided. Wynn was the biggest loser in term of market share this month losing 1.8% to just 10.3% while LVS, MGM, MPEL and Galaxy put up strong numbers.

 

MACAU: A December To Remember - image002

 

MACAU: A December To Remember - image003


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