prev

European Banking Monitor: Short Term Risk Trumps Reward

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 .

 

European Financials CDS Monitor – European financials were wider across the board last week.

 

European Banking Monitor: Short Term Risk Trumps Reward  - bb. banks

 

Euribor-OIS spread – The Euribor-OIS spread widened by 1 bp to 11 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: Short Term Risk Trumps Reward  - bb.Euribor

 

ECB Liquidity Recourse to the Deposit Facility – Deposits continue the secular decline. 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: Short Term Risk Trumps Reward  - bb. facility

 

Matthew Hedrick

Senior Analyst

 


Retail Call TODAY: Look Into Europe Pre-Earnings

Takeaway: REMINDER: Today we're hosting a call at 1pm to review European retail pre-EPS. Tickers include GPS, ANF, KORS, RL, URBN, DECK, GES, TIF, TJX

 

Retail Call TODAY: Look Into Europe Pre-Earnings - Retail europedial

We’d like to invite Hedgeye clients to participate in a call we are hosting on Monday February 4th to explore the state of retail in Europe in advance of 4Q retail earnings. We’ll be co-hosting the call with Stacey Widlitz of SW Advisors www.staceywidlitz.com where she will give us her view on incremental changes we’re seeing with different brands in Europe, including promotional cadence vs. last year, and general selling trends overall.  When we hosted a similar call with Stacey last quarter, her insights proved correct on GES, GPS and ANF. We’ll revisit those names, as well as the following on Monday…

 

KORS

PVH (Hilfiger)

COH

URBN

RL

DECK

TIF

TJX

LULU

local competition-Debenhams, John Lewis, Next, BHS, House of Fraser

fast fashion (Zara, H&A, Topshop)

 

We encourage you to send any questions in advance to , and we’ll be sure to both ask (anonymously) and answer for you on the call. Stacey will also be available for Hedgeye clients after the call to discuss trends in more detail.

 

We hope you can join us.

 


Crushing It

Client Talking Points

Growth Games

With #GrowthStabilizing, you have two things happening: stocks are going up and bonds and commodities are getting crushed. We’ve seen the rally in stocks as the Dow hit 14,000 and the S&P 500 pole-vaulted past 1500. Treasuries, conversely, have been getting hammered and the yield on the 10-year ticked up to 2.05% this morning as fund flows continue to shift from bonds to stocks. With stocks up the last five weeks in a row, they show no sign of letting up soon. 

End Of The Golden Days

Goldbugs are an interesting breed. They keep insisting gold will always go up, until it doesn’t. Gold made a long-term lower-high in mid November at $1755/oz then snapped our intermediate-term TREND line of $1698 in early December. Last week, gold net long positions crashed to 82,081. Those bugs went selling their net long positions in Gold contracts to the tune of down -24% wk-over-wk. Like we said before, the Growth Game is bearish on bonds and gold, bullish for stocks.

Asset Allocation

CASH 46% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

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.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“08:16ET Herbalife subject of FTC investigation: NY Post” -@cbk_chi

QUOTE OF THE DAY

“It is by universal misunderstanding that all agree. For if, by ill luck, people understood each other, they would never agree.” -Charles Baudelaire

STAT OF THE DAY

The best start for US Equity flows since 1996 as stocks make multi-year highs.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD

Takeaway: Most of our risk measures remain benign, but rising commodities and higher taxes may be starting to exert some pressure.

Key Takeaways:

 

* Downside Trumps Upside in the Short Term: Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TRADE resistance and 2.8% downside to TRADE support.

 

* Yield Spreads Are Widening: Last week the 2-10 spread widened by 12 bps to 172 bps.

 

High Yield Backs Up: High yield rates rose 15 bps last week, ending the week at 5.96%.

 

* Muni Risk Continues to Fall: MCDX 16V-1 spreads fell 3 bps to 108 bps. 

 

* Chinese Steel Rises Further: Steel prices in China rose 0.7% last week, or 26 yuan/ton, to 3755 yuan/ton. 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 2 of 12 improved / 5 out of 12 worsened / 6 of 12 unchanged

 • Intermediate-term(WoW): Positive / 7 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Positive / 9 of 12 improved / 2 out of 12 worsened / 2 of 12 unchanged

 

1. American Financial CDS -  U.S. financial swaps were mixed with mortgage insurers and bond guarantors significantly wider WoW while the rest of the sector was flat to slightly tighter. 

 

Tightened the most WoW: ACE, AON, HIG

Widened the most WoW: MTG, AGO, GNW

Tightened the most WoW: GNW, AGO, MBI

Widened the most/ tightened the least MoM: COF, MTG, GS

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 1

 

2. European Financial CDS - European financials were wider across the board last week.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 2

 

3. Asian Financial CDS - Chinese and Indian banks were generally higher, while Japanese financials were mixed.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 17

 

4. Sovereign CDS – Sovereign swaps were wider globally last week with Italy, Spain and Portugal leading the way.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 18

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 3

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 15 bps last week, ending the week at 5.96% versus 5.81% the prior week.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index fell -4.2 points last week, ending at 1769.2.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 6

 

7. TED Spread Monitor – The TED spread was essentially unchanged last week, ending the week at 22.75 bps. 

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 1.2 points, ending the week at 13.31 versus 12.1 the prior week.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 8

 

9. Euribor-OIS Spread– The Euribor-OIS spread widened by 1 bp to 11 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. 

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Deposits continue the secular decline. 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.  

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 10

 

11. Markit MCDX Index Monitor – Last week spreads tightened 3 bps, ending the week at 107.8 bps.The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. 

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 11

 

12. Chinese Steel – Steel prices in China rose 0.7% last week, or 26 yuan/ton, to 3755 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 172 bps, 12 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TRADE resistance and 2.8% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: SHORT TERM RISK TRUMPS REWARD - 14

 

Joshua Steiner, CFA


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 4, 2013


As we look at today's setup for the S&P 500, the range is 19 points or 1.00% downside to 1498 and 0.25% upside to 1517.   

                                                                                                                            

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: 1.77 from 1.75
  • VIX  closed at 12.9 1 day percent change of -9.66%
  • 10YR – with employment #GrowthStabilizing, Treasuries waking up to another 4bps higher in the 10yr Yield to 2.05% this morn as fund flows continue to dominate just about any bear case for stocks that I can find (best start for US Equity flows since 96’). US Stocks up for 5 weeks in a row; no intermediate-term resistance for the 10yr to 2.41%.

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:45am: ISM New York, Jan. (prior 54.3)
  • 10am: Factory Orders, Dec., est. 2.2% (prior 0.0%)
  • 11am: Fed to purchase $2.75b-$3.5b debt in 2020-2022 sector
  • 11:30am: U.S. Treasury to sell $32b in 3M bills, $28b in 6M bills
  • U.S. Rates Weekly Agenda

GOVERNMENT:

    • President Barack Obama speaks on gun control in Minn.
    • Obama said yday that U.S. needs rev. w/spending cuts
    • Treasury issues quarterly borrowing estimates
    • Release date for Pentagon’s fiscal 2014 budget; delay expected after fiscal cliff disruptions

WHAT TO WATCH

  • China services industries expand at fastest pace since Aug.
  • PBOC’s Zhou to step down in March, official newspaper reports
  • Cowen plans to buy Dahlman Rose amid stock-trading slowdown
  • Blackrock sued by pension funds over securities lending fees
  • ntergy says service to Superdome was operating properly
  • Baltimore beat San Francisco 34-31 in Super Bowl
  • Pegasus hires Starwood Capital Hotel chief to run luxury brand
  • Permira, KKR said to work with JPMorgan on ProSiebenSat.1 exit
  • Blackstone fund buys majority stake in seaplane companies
  • Aspen Pharmacare in talks to buy Merck & Co.’s Netherlands unit
  • Zombie love tale “Warm Bodies” No. 1 film with $20m
  • S. Korea boosts diplomacy against possible N. nuclear test
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • New feature: North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • China Export Rebound, IPad, U.S. Trade: Week Ahead Feb. 4-9

EARNINGS:

    • Humana (HUM) 6am, $1.07 - Preview
    • TransDigm Group (TDG) 7am, $1.48
    • Simon Property (SPG) 7am, $2.17
    • MWI Veterinary (MWIV) 7am, $1.19
    • Sysco (SYY) 8am, $0.41
    • Clorox (CLX) 8:30am, $0.81 - Preview
    • Gannett (GCI) 8:30am, $0.88
    • Royal Caribbean (RCL) 8:30am, $0.06
    • Mercury General (MCY) 8:30am, $0.23
    • Acme Packet (APKT) 4pm, $0.08
    • Torchmark (TMK) 4pm, $1.31
    • Edwards Lifesciences (EW) 4pm, $0.77
    • Baidu (BIDU) 4pm, $1.30
    • Bottomline Technologies (EPAY) 4pm, $0.23
    • Gilead Sciences (GILD) 4:01pm, $0.48
    • General Growth Properties (GGP) 4:01pm, $0.29
    • Hologic (HOLX) 4:01pm, $0.37
    • Life Technologies (LIFE) 4:01pm, $1.11
    • Power Integrations (POWI) 4:03pm, $0.42
    • Axis Capital Holdings (AXS) 4:04pm, $(1.19)
    • SolarWinds (SWI) 4:05pm, $0.33
    • Anadarko Petroleum (APC) 4:05pm, $0.71
    • Leggett & Platt (LEG) 4:05pm, $0.32
    • Yum! Brands (YUM) 4:09pm, $0.82
    • Symetra Financial (SYA) 4:10pm, $0.34
    • Advent Software (ADVS) 4:14pm, $0.28
    • Hartford Financial (HIG) 4:15pm, $0.28
    • Healthcare Services (HCSG) 4:15pm, $0.18
    • Hillenbrand (HI) 4:23pm, $0.37
    • BRE Properties (BRE) 4:45pm, $0.60
    • Post Properties (PPS) 5pm, $0.65
    • Bristow Group (BRS) 5:05pm, $0.89
    • Idex (IEX) 5:22pm, $0.68
    • Markel (MKL) Post-Mkt, $(2.81)
    • Regal-Beloit (RBC) Post-Mkt, $0.74

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Platinum Gains to Four-Month High on South Africa Output Concern
  • Mongolia Should Get More Control of Rio Mine, President Says
  • Bulls Rewarded With Best January Rally Since 2006: Commodities
  • Brent Crude Slips From Four-Month High Amid Iran Discussions
  • Soybeans Reach Six-Week High on Threats to South American Crops
  • Zinc Declines From One-Year High as European Equities Retreat
  • Sugar Advances in New York as Speculators Curb Bearish Wagers
  • Iron-Ore Swaps Rally to 15-Month High as China Seen Accelerating
  • Rubber Rallies to 10-Month High on U.S. Car Sales, Weakening Yen
  • Corn Imports by South Korea Seen Climbing on Higher Wheat Costs
  • Land Battles Rise as U.S. Eyes 450,000 Miles of New Pipe: Energy
  • Hedge Funds Racing Oil Refiners to $100 a Barrel: Energy Markets
  • Freezing California Lettuce Boosts Salad Costs: Chart of the Day
  • Shanghai Rebar Rises to Nine-Month High on Service Industry Data

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


SPAIN – what is the #PoliticalClass getting greased w/ bailout funds on the side, amongst friends? Most Read headline on Bloomberg this morn is about Spanish (Rajoy) and Italian corruption; it’s like watching Lincoln. All the while both the IBEX and MIB indexes has abruptly snapped my TRADE lines of support, looking nothing like Germany.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


JAPAN – old Taro Aso was at it again overnight, jawboning the Yen to new lows, breaking the 93 level (en route to 100, then 120) as the Nikkei’s crash (to the upside) moves to +30% since November 13th – seems normal. I couldn’t make this up if I tried but last night Aso said “we can only learn from history”.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 


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 80.64%
  • SHORT SIGNALS 78.61%
next