prev

Growth Kills Gold

Gold (GLD) prices continue to fall lower as stocks head higher. Why's that? Consumption and growth. We're seeing a ton of consumption and growth as evidenced by last week's jobs data and the housing market and stock market. There's lots to like. As for gold? It'll continue to fall in price as we recover - we feel sorry for those that bought it at the top.

 

Growth Kills Gold - YTD GOLDchartmay


Treasuries: Fighting For Yield

The yield on the 10-year Treasury surged to 1.75% this morning as investors stopped worrying so much about having a safe haven for money and are keen to take advantage of the performance offered in other markets like the US stock market. Still, investors need to get bullish on growth ASAP. No point in putting your money in a low-yield device like the 10-year when the S&P 500 is making new all-time highs each week.

 

Treasuries: Fighting For Yield - USTperf


European Banking Monitor: Credit Markets Get Even More Comfortable

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 - Europe's financial system continues to heal, in spite of the occasional headline to the contrary. With the exception of one Greek bank, all European Financials saw swaps tighten. Big moves came in Spain, Italy, France and the U.K. 

 

---

 

European Financial CDS - With the exception of one Greek bank, all European Financials saw swaps tighten. Big moves came in Spain, Italy, France and the U.K. 

 

European Banking Monitor: Credit Markets Get Even More Comfortable - pp. banks

 

Sovereign CDS – Sovereign swaps were tighter around the globe last week with the largest improvements coming in Portugal (-40 bps), Spain (-25 bps), and Italy (-20 bps). The U.S. tightened by 2 bps to 32 bps, while Germany and Japan were unchanged.

 

European Banking Monitor: Credit Markets Get Even More Comfortable - pp. sov1

 

European Banking Monitor: Credit Markets Get Even More Comfortable - pp. sov2

 

European Banking Monitor: Credit Markets Get Even More Comfortable - pp. sov3

 

Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 13 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: Credit Markets Get Even More Comfortable - pp. euribor

 

ECB Liquidity Recourse to the Deposit Facility – Deposits were relatively unchanged week-over-week. 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: Credit Markets Get Even More Comfortable - pp. facility


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.

Burning The Yen

The value of the Japanese Yen continues to plummet thanks to the monetary policies of the Bank of Japan. The Yen is losing ground against the US dollar this morning, falling below our TREND line of support at 97.11. We'll look for a bounce to short it.

 

Burning The Yen - FXYYTD


Morning Reads From Our Sector Heads

Keith McCullough (CEO):

 

Yen Falls 3rd Day on Signs U.S. Economy Improving; Ringgit Rises (via Bloomberg)

 

Dinosaur Skeleton to Be Returned to Mongolia (via NY Times)

 

Kevin Kaiser (Energy):

 

Twilight of a Stock-Market Darling (via Barron's)

 

Matthew Hedrick (Europe):

 

Sweden a Crisis Casualty No More Shows How to Get Haven Glow (via Bloomberg)

 

Josh Steiner (Financials):

 

Bank of America Settlement Clears Hurdle (via WSJ)

 

N.Y. Plans Homeowner Enforcement Against Financial Firms (via Bloomberg)

 

Jamie Dimon might find strength in surrendering (via STL Post-Dispatch)

 

Brian McGough (Retail):


ILO Formulates Plan for Worker Safety as Rana Plaza Death Toll Increases (via WWD)

 

 

 

 

 






MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE

Takeaway: The positive correlation between plunging high yield rates and sinking muni default risk continues, for now. All systems remain go.

Key Takeaways:

 

* XLF Macro Quantitative Setup – Risk reward appears to be short term negatively asymmetric. Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TRADE resistance and 2.5% downside to TRADE support.

 

* Markit MCDX Index – The decline in muni risk is relentless. Last week spreads tightened a further 16 bps in the 16-v1 series MCDX, ending the week at 42.5 bps versus 59.2 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps.  

 

* High Yield (YTM) – The market continues to jump into the HY pool head first, as rates fell 27 bps last week, ending the week at 5.27% versus 5.53% the prior week. 

 

European Financial CDS - Europe's financial system continues to heal, in spite of the occasional headline to the contrary. With the exception of one Greek bank, all European Financials saw swaps tighten. Big moves came in Spain, Italy, France and the U.K. 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 7 of 12 improved / 0 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 / 7 of 12 improved / 0 out of 12 worsened / 6 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 15

 

1. U.S. Financial CDS -  Aside from MBIA, all domestic financials tightened. MS, GS and BofA tightened by 12, 10 and 10 bps, respectively. Mortgage Insurers continued their relentless advance, dropping by 42 and 35 bps, respectively (MTG & RDN). Overall, swaps tightened for 26 out of 27 domestic financial institutions.

 

Tightened the most WoW: ALL, AXP, SLM

Widened the most/ tightened the least WoW: MBI, CB, TRV

Tightened the most WoW: RDN, MTG, AXP

Widened the most/ tightened the least MoM: MBI, PRU, MMC

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 1

 

2. European Financial CDS - With the exception of one Greek bank, all European Financials saw swaps tighten. Big moves came in Spain, Italy, France and the U.K. 

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 2

 

3. Asian Financial CDS - Indian banks saw sharp drops in credit default swap premiums. Chinese banks were narrowly tighter, while Japanese banks were mostly unchanged. Daiwa and Nomura, however, both saw swaps drop by 10 and 9 bps, respectively.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 17

 

4. Sovereign CDS – Sovereign swaps were tighter around the globe last week with the largest improvements coming in Portugal (-40 bps), Spain (-25 bps), and Italy (-20 bps). The U.S. tightened by 2 bps to 32 bps, while Germany and Japan were unchanged.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 18

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 3

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 26.8 bps last week, ending the week at 5.27% versus 5.53% the prior week.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.6 points last week, ending at 1799.64.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 6

 

7. TED Spread Monitor – The TED spread rose 0.4 basis points last week, ending the week at 22.71 bps this week versus last week’s print of 22.26 bps.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index fell -0.7 points, ending the week at 4.63 versus 5.3 the prior week.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 13 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: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Deposits were relatively unchanged week-over-week. 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: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 10

 

11. Markit MCDX Index Monitor – Last week spreads tightened 16 bps, ending the week at 42.5 bps versus 59.2 bps the prior week. 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: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 11

 

12. Chinese Steel – Steel prices in China fell 0.1% last week, or 3 yuan/ton, to 3571 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: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 146 bps, -1 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TRADE resistance and 2.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: CREDIT MARKETS GET EVEN MORE COMFORTABLE - 14

 

Joshua Steiner, CFA


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next