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April ECB Presser: Tight Credit Conditions Persist

Today’s ECB press conference was largely non-eventful.  Rates were left unchanged, Draghi reiterated that the economic outlook remains weak, inflation expectations are anchored, and credit conditions remain tight. Below we show a chart of the weakening credit lines to households and corporations, which should continue to hamper real growth.

 

April ECB Presser: Tight Credit Conditions Persist - ww. ecb loans

 

Click here to read Draghi’s prepared remarks.

 

There were many questions on Cyprus in the Q&A. Draghi was quick to state that the Cyprus levy is no template for the Eurozone (and acknowledged that Eurogroup head Jeroen Dijsselbloem misspoke on the topic), and that the original ECB proposals for a Cyprus bailout/in did not include a levy.

 

As we discussed yesterday in a post titled “ECB on Hold; EUR Pressured; Slovenia Scares” we think that the uncertainty around the next Italian government, the tail of Cyprus, recent scares over Slovenia as the next country in need of a bailout, and the ECB keeping the interest rate on hold will put downside pressure on the EUR/USD.

 

Our critical quantitative lines on the EUR/USD are outline in the chart below. Beyond immediate term TRADE support of $1.27 we do not see any meaningful support until around $1.22.

 

April ECB Presser: Tight Credit Conditions Persist - ww. eurusd

 

Matthew Hedrick

Senior Analyst


Stimulus: Big In Japan

Following in the footsteps of the Federal Reserve post-2008 financial crisis, the Bank of Japan announced overnight that it would inject $1.4 trillion into the economy over the next two years as a stimulus measure. As a result, the Japanese Yen took a nose dive as the currency is debauched even further and stocks around the globe, including the Nikkei 225 and S&P 500, rose considerably on the news.

 

Stimulus: Big In Japan - NIKKEISPY

 

As you can see in the chart above, the Nikkei 225 has ripped to the upside, posting a +5.2% gain in the last two days alone. Insider buying and selling is inevitable but any kind of easing program put into place by Japan's central bank is bound to make waves in the stock market.


Morning Reads From Our Sector Heads

Howard Penney (Restaurants):

 

Panera testing donation-based menu item (via Nation's Restaurant News)

 

Brian McGough (Retail):

 

Lululemon Dispatches Employees to Overhaul Offshore Production (via Sports One Source)

 

Kevin Kaiser (Energy):

 

Midstates Petroleum to Acquire Oil-Weighted Properties in the Western Anadarko Basin in Oklahoma and Texas (via Midstates Petroleum)

 

Peyto Exploration and Development Corp. President's Monthly Report (via Peyto)

 

Josh Steiner (Financials):

 

Bond Traders Club Loses Cachet in Most Important Market (via Bloomberg)

 

Fed’s Williams: Bond Purchases May Be Tapered by This Summer (via WSJ)

 

Government Watchdog Faults Regulators Over Foreclosure Review (via NYT Dealbook)

 

 

 


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INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS?

Takeaway: Labor conditions in the latest week slowed significantly on a seasonally adjusted basis and slightly on a non-seasonally adjusted basis.

This morning's awful seasonally adjusted initial jobless claims print appears to have been negatively impacted by the Easter week holiday. Taken together with the weak ADP report and the weak Challenger report, the market is clearly developing a bearish bias in the short term around labor conditions. We'll see what tomorrow's river card brings.

 

The non-seasonally adjusted claims number was essentially flat week-over-week. Looking at the trend in the non-seasonally adjusted data, it's still trending better year-over-year, but only just barely. This week's print was better by just 0.5% vs. the same week last year. The trend in this dynamic over the last five weeks has been: -0.5%, -2.4%, -5.8%, -6.1%, -8.9%. Clearly the rate of year-over-year improvement has been slowing notably over the past month. A silver lining is that the trend in rolling NSA claims YoY is less negative, as we show in the second chart of this note. 

 

The bottom line is this: labor conditions aren't as bad as they appear (in the SA numbers), but are, in fact, showing signs of genuine cooling.

 

The Data

Initial jobless claims rose 28k to 385k from 357k WoW. The previous week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 10.75k WoW to 354.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -3.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -5.9%

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 1

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 2

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 3

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 4

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 5

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 6

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 7

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 8

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 9

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 10

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 11

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 12

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 13

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 14

 

Yield Spreads

The 2-10 spread fell -6.9 basis points WoW to 160 bps. In 1Q13, the 2-10 spread is averaging 167 bps, which is higher by 25 bps relative to 4Q12.

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 15

 

INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 16

 

 

Joshua Steiner, CFA


THE M3: TEMPORARY LONGER GONGBEI BORDER HOURS

The Macau Metro Monitor, April 4, 2013

ADDITIONAL TWO HOUR TRIAL OPENING FOR GONGBEI BORDER STARTS TODAY, GOV'T WANTS 24-HR OPERATION Macau Daily Times

The Gongbei border gate on the Zhuhai side is running for longer from today until Saturday (April 6) as a temporary trial measure.  Under the approval, the Gongbei border will open at 6am and close at 1am for three successive days for the Ching Ming Festival, from today onwards.  “We hope to realize 24-hour operations for the border gates, but we have to discuss with other related parties, such as the central government and the Zhuhai side,” Alexis Tam said, a spokeman for the MSAR government.

 



Money For Nothing

Client Talking Points

Ease Into It

Keith mentioned that this was coming and it came like a bat out of hell: the Bank of Japan will inject $1.4 billion into the economy in less than two years. As a result, the Yen bit the dust, the Nikkei 225 continued its meteoric rise (+5.2% over the last two days) and US stocks applauded as the futures rose in anticipation of the announcement. This is what happens when you print more money and promise to throw a bunch of it at anything that moves; people get excited and it helps inflate stocks around the world.

Navigating Europe

Europe is looking quite bearish, but it's important to know which index to play if you're going to short it. Germany's DAX index and the UK's FTSE 100 have held above our TRADE and TREND lines of support since the beginning of April. We wouldn't short these indices but the EuroStoxx 50 is looking ripe for a short very soon, though. Since we stick to a process here at Hedgeye, we're going to wait for our signals to tell us when to short the index no matter how tempting it may be to hop right in. The economic data (particularly, some of the March PMI numbers) supports our bearish thesis and if we get another country like Cyprus that needs a bailout, the selling will come hard and fast.

Asset Allocation

CASH 18% US EQUITIES 30%
INTL EQUITIES 25% COMMODITIES 0%
FIXED INCOME 3% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
DRI

Darden stands to be a beneficiary from a housing recovery and an improved employment picture, which boosts casual dining trends. The company's net income declined on its recent earnings report but beat the Street's expectations.

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

"Yen down 2.54% against USD as BoJ intends to double size of its balance sheet. ow.ly/i/1OTde #EcoBrief" -@JoeBrusuelas

QUOTE OF THE DAY

"History is indeed little more than the register of the crimes, follies and misfortunes of mankind." -Edward Gibbon

STAT OF THE DAY

Bank of Japan to pump $1.4 trillion into economy as part of an unprecedented stimulus package.


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