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January ECB Presser: Draghi’s Optimism in No Real Recovery

There wasn’t much “new” news revealed in today’s ECB press conference; however Draghi underlined the significant progress that the region has made over the last six months and even referred to a “positive contagion” that can take place.

 

In the Q&A session Draghi said that the council was unanimous in its interest rate decision (and only 5 of 55 surveyed economists expected a change):  the interest rate on the main refinancing operations was unchanged at 0.75% along with the interest rates on the marginal lending facility and the deposit facility at 1.50% and 0.00%, respectively.

 

January ECB Presser: Draghi’s Optimism in No Real Recovery - aaa. ecb rates

 

Of the economic indicators there was no great change over December’s statements. The Bank believes that CPI should moderate over the medium term and fall below 2% in 2013. GDP is expected to see a gradual recovery in late 2013, however risk remains to the downside mainly due to the slow implementation of structural reforms, geopolitical issues and imbalances in major industrialized countries. Further, GDP projections remain in line with December’s 2013 guidance of -0.9% and 0.3%.

 

You can find Draghi’s Introductory Statements here.

 

In a question related to signs of regional improvement Draghi very specifically stated the financial market improvements over the last six months:

  • Bond yields and country CDS much lower
  • Stock markets have increased
  • Volatility is at historical lows
  • Lower redemptions are now much lower
  • Strong capital inflow to the Eurozone
  • Deposits in peripheral banks are up
  • Target 2 balances are broadly down
  • The ECB balance sheet size (seen as a risk) continues to shrink

When returning to the broader economy, and not financial markets, Draghi was less positive, stating that there is really no end in sight and that the Bank had no plan to exit its non-standard measures and that regional economies still remain fragmented.

 

We too wrestle with the mismatch between the broader economy and market conditions. Below are a couple of signals we’re watching. Broader Eurozone confidence figures are flattening out to showing slight signs of improvement while ECB loans to households and non-financial corporations have yet to arrest their decline/show a meaningful inflection.

 

January ECB Presser: Draghi’s Optimism in No Real Recovery - aaa. confidence

 

January ECB Presser: Draghi’s Optimism in No Real Recovery - aaa. ecb loans

 

With respect to our view on the EUR/USD we continue to expect the cross to be range bound, especially given the OMT (bond purchasing program) that is in Draghi’s back pocket, the favorable financial market conditions exhibited since last summer, and commitment of Eurocrats to keep the union together at all costs.

 

Another bullish data point comes from the CFTC data we follow for net non-commercial positions in the EUR/USD. The latest data point (1/1/2013) turned positive for the first time since August 2011 and is confirming a strong trend-line breakout!

 

January ECB Presser: Draghi’s Optimism in No Real Recovery - aaa. cftc

 

We do not currently have a real-time position in the EUR/USD, however we’d trade the range of $1.29 to 1.31.

 

January ECB Presser: Draghi’s Optimism in No Real Recovery - aaa. eurusd

 

On balance we think that there is still much political risk in the Eurozone on the backdrop of a very slowly improving economy (#GrowthStabilizing). Fiscal consolidation is clearly a long road and we still expect the periphery to underperform as it mismanages its consolidation targets. The Italian election towards the end of February will be one key political test, as is the feedback loop between imbalances across sovereigns and banks, especially without a fiscal union in place. Stay tuned.

 

Matthew Hedrick

Senior Analyst


JOBLESS CLAIMS: THE SIGNAL AND THE NOISE

Takeaway: Full steam ahead on the labor front.

This week's take on the labor market is shorter than usual owing to me being on the road.

 

The Signal

Labor conditions improved demonstrably this past week, in spite of what the printed number suggests. As the first chart shows, the rolling YoY NSA claims series improved to -9.8%, which is sharply better than the -6.0% and -5.9% readings over the prior two weeks. Remember that a smaller number (i.e. more negative) is better in this instance. This puts the rolling NSA series right back on track with it's longer-term average, meaning that labor conditions are continuing to improve, and at an accelerating rate versus what we saw in December.

 

The Noise

Seasonally-adjusted claims "rose" 4k to 371k after last week's print was revised from 372k to 367k. Overall, the seasonally-adjusted series continues to bounce along the 365-375k range it has occupied post Hurricane Sandy renormalization.

 

JOBLESS CLAIMS: THE SIGNAL AND THE NOISE - nsa rolling yoy

 

JOBLESS CLAIMS: THE SIGNAL AND THE NOISE - sa 4 wk

 

JOBLESS CLAIMS: THE SIGNAL AND THE NOISE - sep thru feb

 

Joshua Steiner, CFA

 

 


UNH: Trouble Over Time

UnitedHealth Group (UNH) is a name we’re looking to short when the timing is right and we’d rather short the name sooner than later rather than miss any opportunity. We are less concerned with a strong Q412 earnings release and more concerned with accelerating cost trends from an early/strong flu season, employment trends and a new modeling tool. 

 

UNH: Trouble Over Time  - Managed Care Implied Premium Growth

 

The most recent employment data continues to suggest both rising maternity (significant driver of inpatient utilization) and acceleration of physician office visits, over the next few quarters. Our expert call that we hosted with Ken Burdick last week added to our concerns surrounding the Affordable Care Act. There will likely be further market disruption that comes with the implementation of the Act than previously thought.

 

UNH: Trouble Over Time  - 1 9 2013 2 53 38 PM

 

All in all, the stock screens as a long right now but over time, we believe the opportunity to short UNH will present itself very soon as operating trends deteriorate. 

 

UNH: Trouble Over Time  - Google Trend Flu   4Q12

 


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Japaniflation

Client Talking Points

Pump It Up

The Japanese are being watched by the rest of the world’s central planners, politicians and investors right now. People are interested to see exactly how Japan plans on fixing its economy and whether it will follow in the path of the United States, footstep after footstep. Japan’s Finance Minister Taro Aso is saying he wants to buy not only domestic bonds but European bonds as well. They also want to print money and devalue the yen as much as possible. They claim it’s all in the name of keeping the yen at a “reasonable” level. We’ll see what the Japanese are capable of doing soon enough and the people of Japan probably won't be too happy about it.

Asset Allocation

CASH 43% US EQUITIES 21%
INTL EQUITIES 21% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“BATS says their customers lost around $420k due to a system bug that hit 430k trades since 08. Problem discovered Friday.” -@nathanielpopper

QUOTE OF THE DAY

“The thing I hate about an argument is that it always interrupts a discussion.” -G.K. Chesterton

STAT OF THE DAY

Jobless Claims 371,000; below our #GrowthStabilizing level of 385,000.


AXP: SPENDTREND - DOLALR VOLUME GROWTH DROPS SHARPLY IN DECEMBER

Takeaway: December credit volume growth slowed sharply vs. November, but 4Q12 growth is still likely to be up from 3Q12. January will be interesting.

Slowest Growth in Three Years

First Data released its December SpendTrend data this morning, which tracks aggregate same-store sales activity in the United States. December showed further deceleration in credit card volume growth to +4.3% YoY vs. +6.8% YoY growth in November and +8.9% YoY growth in October. 

 

On an overall basis, including credit, debit and check, consumer spending volume growth in December slowed to 4.0% YoY, which was down from 5.8% in November and 6.7% YoY growth in October. December's 4.0% YoY growth was, in fact, the slowest rate of growth in the last three years.

 

A portion of the weakness in December was attributed to fiscal cliff apprehension on the part of consumers coupled with the time-shift of excessive holiday retail discounting in November. 

 

We like to use SpendTrend data as a proxy for American Express' intra-quarter momentum. The good news is that the underlying growth rate in credit-based spend volume has been more resilient in 4Q12 than the longer-term trend would have suggested. 4Q12 growth, based on First Data's numbers, accelerated to +6.7% from +5.0% in the third quarter. There's also likely to be a notable FX tailwind for the company in 4Q12, as we show in the last chart.

 

Our primary concern on Amex, however, remains the double impact of higher income tax rates on its top tier clients coupled with higher payroll taxes on all its clients. The company typically provides an intra-month update when it reports earnings. This quarterly update will be more interesting than usual, as it will shed light on both the impact of the new tax regime as well as whether there was time-shifting going on ahead of the fiscal cliff outcome.

 

 

AXP: SPENDTREND - DOLALR VOLUME GROWTH DROPS SHARPLY IN DECEMBER - first data monthly

 

AXP: SPENDTREND - DOLALR VOLUME GROWTH DROPS SHARPLY IN DECEMBER - first data quarterly

 

AXP: SPENDTREND - DOLALR VOLUME GROWTH DROPS SHARPLY IN DECEMBER - qtrly axp vs fdc

 

AXP: SPENDTREND - DOLALR VOLUME GROWTH DROPS SHARPLY IN DECEMBER - us dollar qtrly

 

Joshua Steiner, CFA

 

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 10, 2013

 

As we look at today's setup for the S&P 500, the range is 45 points or 1.03% downside to 1446 and 2.05% upside to 1491.                                                                                                                               

 

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: 1.64 from 1.62
  • VIX closed at 13.81 1 day percent change of 1.40%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init jobless claims, Jan. 5, est. 365k (prior 372k)
  • 8:45am: Bloomberg Jan. U.S. economic survey
  • 9:45am: Bloomberg consumer comfort, Jan. 6 (prior -31.8)
  • 10am: Freddie Mac 30-yr mortgage rates
  • 10am: Wholesale inventories, Nov., est. 0.3% (prior 0.6%)
  • 10am: JOLTs job openings, Nov., est. 3.683m (prior 3.675m)
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to buy $2.75b-$3.50b in 02/15/2020–11/15/2022 sector
  • 1pm: U.S. to sell $13b 30Y bonds reopening
  • 1:10 pm: Fed’s George speaks in Kansas City
  • 2pm: Fed’s Bullard speaks in Madison, Wisconsin
  • 8pm: Fed’s Kocherlakota speaks in Minneapolis

GOVERNMENT:

    • House, Senate not in session
    • CFPB field hearing in Baltimore on mortgage policy, 10am
    • Organic farmers to ask appeals court to reinstate suit filed against Monsanto over gene-modified seeds, 10am
    • Dow, other companies discuss natural gas exports, 12pm

WHAT TO WATCH

  • Blackrock to buy $17.6b ETF business from Credit Suisse
  • Herbalife to defend itself against Ackman in analyst mtg
  • China exports rise more than estimated as credit expands
  • Bats says system errors caused pricing problems over 4yrs
  • Spain sells EU5.8b of bonds vs maximum target of EU5b
  • BOE seen refraining from further stimulus as officials access credit plan
  • Chrysler says UAW retiree trust demands step to possible IPO
  • Volkswagen offers to buy out MAN owners to push truck intergration
  • Buffett guarantees banks pose no U.S. threat after cutting excessive risk
  • Deutsche Bank denies Libor manipulation after report of $654m gain
  • Liberty Media awarded EU765m in case against Vivendi
  • Verizon said to face backup power requirement on emergency calls
  • Tiffany, Aeropostale, American Eagle release holiday sales

EARNINGS:

    • Jean Coutu Group (PJC/A CN) 7am, $0.26
    • MSC Industrial (MSM) 7:30am, $1.01
    • Astral Media (ACM/A CN) 7:55am, $1.03
    • Supervalu (SVU) 8am, $0.07
    • Synnex (SNX) 4pm, $1.04

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brent Oil Rises to Three-Month High on Chinese Growth, Saudi Cut
  • Corn Supply Dropping Most Since 1995 Signals Rally: Commodities
  • Saudi Arabia Said to Cut December Oil Output to 19-Month Low
  • European Copper Premium Seen Steady by Traders Amid Weak Demand
  • Palm Oil Reserves in Malaysia Gain to Record as Exports Drop
  • Goldman Names Quek Asia-Pacific Commodities Trading Head
  • Copper Rises on Chinese Exports as Aluminum Gains for Fourth Day
  • Wheat Advances as Slump to Six-Month Low May Attract Importers
  • Sugar, Cocoa, Coffee Gain as Commodities Advance on China’s Data
  • Hall Sets Up Commodities Hedge Fund Five Months After Duet Split
  • Bakken Oil on Trains to East Boosts Independence: Energy Markets
  • Molycorp Misses Rare-Earth Output Target, Reduces Sales Forecast
  • China Steam Coal Prices Fall 26% From Peak in December: BI Chart
  • Shanghai to More Than Double Bonded Warehouses as LME Eyes Port

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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