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HEARD ON THE AM CALL: GOT YIELD?

Takeaway: Our Central Planner in Chief is not bullish enough on growth.

(Excerpt from this morning's Hedgeye conference call)

 

Just to show you how horrendous being long no-growth “yield” is performing, here’s the score:

 

  1. Utilities (XLU) are down -6.3% in May
  2. Financials (XLF) are leading the S&P 500 up +5.5% in May

That is a huge divergence.

 

So, why are utilities getting crushed, while financials (and US Treasury Yields) are ripping higher? Simple. Because one likes growth, and the other doesn’t like Bernanke.

 

The market is now – explicitly and implicitly – betting against the Chairman of the Federal Reserve. The bottom line here? Ben Bernanke is not bullish enough on growth.

 

#GrowthAccelerating

 

HEARD ON THE AM CALL: GOT YIELD? - xlf.xlu


TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM

Takeaway: The risk monitor has turned somewhat bearish on a short term basis. We're keeping an eye on high yield for indications of a change.

Key Takeaways:

 

Overall, our gauges of risk show broad deterioration on an immediate term basis, though remain bullish on an intermediate and long term basis. The recent back-up in High Yield, Municipal Credit and widening in U.S. Financial swaps are all an inflection from the YTD trends. 

 

* High Yield (YTM) Monitor – High Yield rates rose 16.0 bps last week, ending the week at 5.47% versus 5.31% the prior week.

 

* Sovereign CDS – Sovereign swaps were mixed last week with Italy and Spain widening by 15 and 8 bps, respectively, while Germany and France tightened by 2 and 4 bps. Meanwhile, Japan widened 7 bps to 72 bps. The U.S. was unchanged at 30 bps, one basis point narrower than Germany.

 

* U.S. Financial CDS -  Swaps widened for 22 out of 27 domestic financial institutions. The large cap financials were all wider, by an average of 5 bps. Credit card companies AXP and COF widened by a comparable 7 bps and 6 bps, respectively. Meanwhile, mortgage insurers MTG and RDN widened on the week by a modest 12 and 7 bps, respectively, but that marks the second week in a row of no improvement for one of the most levered plays to the housing recovery.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 0 of 13 improved / 6 out of 13 worsened / 7 of 13 unchanged

 • Intermediate-term(WoW): Positive / 8 of 13 improved / 1 out of 13 worsened / 4 of 13 unchanged

 • Long-term(WoW): Positive / 4 of 13 improved / 1 out of 13 worsened / 8 of 13 unchanged

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 15

 

1. U.S. Financial CDS -  Swaps widened for 22 out of 27 domestic financial institutions. The large cap financials were all wider, by an average of 5 bps. Credit card companies AXP and COF widened by a comparable 7 bps and 6 bps, respectively. Meanwhile, mortgage insurers MTG and RDN widened on the week by a modest 12 and 7 bps, respectively, but that marks the second week in a row of no improvement for one of the most levered plays to the housing recovery.

 

Tightened the most WoW: MMC, AGO, MBI

Widened the most WoW: AXP, ALL, COF

Tightened the most WoW: MBI, AGO, RDN

Tightened the least MoM: MET, ACE, TRV

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 1

 

2. European Financial CDS - Though unremarkable, European financial swaps were broadly wider last week with a median increase of 8 bps. Barclays (+13 bps), Deutsche Bank (+10 bps) and UBS (+8 bps) showed the largest deterioration, while DNB of Norway, Investor AB of Sweden and Danske Bank of Denmark were all tighter.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 2

 

3. Asian Financial CDS - Asian financial swaps widened across the board last week, increasing by an average 6 bps. Increases were controlled, with all but two falling in the single digit basis point range. 

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 17

 

4. Sovereign CDS – Sovereign swaps were mixed last week with Italy and Spain widening by 15 and 8 bps, respectively, while Germany and France tightened by 2 and 4 bps. Meanwhile, Japan widened 7 bps to 72 bps. The U.S. was unchanged at 30 bps, one basis point narrower than Germany.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 18

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 3

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 16.0 bps last week, ending the week at 5.47% versus 5.31% the prior week.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index fell -1.1 points last week, ending at 1804.6.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 6

 

7. TED Spread Monitor – The TED spread fell 0.6 basis points last week, ending the week at 23.5 bps this week versus last week’s print of 24.1 bps.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 0.6 points, ending the week at 3.82 versus 3.2 the prior week.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 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. 

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 9

 

10. 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.  

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 10

 

11. Markit MCDX Index Monitor – Last week spreads widened 4 bps, ending the week at 61.7 bps versus 57.7 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. 

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 11

 

12. Chinese Steel – Steel prices in China fell 0.8% last week, or 27 yuan/ton, to 3,536 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 169 bps, -4 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.3% upside to TRADE resistance and 2.5% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR: TEMPERING ENTHUSIASM - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


Morning Reads From Our Sector Heads

Takeaway: Here's a look at some articles Hedgeye sector heads are reading this morning.

Keith McCullough - CEO

Li Tells Germany That China Targets 7% Growth for Decade (via Bloomberg)

Sudan's Bashir threatens to cut oil flow from S Sudan (via BBC)

 

Josh Steiner - Financials

U.K. Banks Cut 189,000 With Employment at Nine-Year Low (via Bloomberg)

Larry Summers has an edge in the race to head the Federal Reserve (via FT)

GSE Reform Bill Quietly in Works Under Sen. Corker (via American Banker)

 

Howard Penney - Restaurants

Coffee Overkill Has More Marketers Thinking That It's Time for Tea (via AdvertisingAge)

McDonald's joins forces with 136-year-old pasta firm in Italy (via The Guardian)

 

Daryl Jones - Macro

U.S. Oil Boom Divides OPEC (via WSJ)

East Coasters Drive Down Gasoline Demand (via WSJ)

 

Kevin Kaiser – Energy

Commodities Provide Tailwind (via WSJ)

Bitumen facility blamed for Peace Country health woes (via CBC News)


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.

All About the Dollar

Client Talking Points

YEN

One way to get the US Dollar right is to get the USD/YEN pair right. We made a call to re-short Yens at 101.21 on Friday, as that was immediate-term TRADE resistance; no support to 103.66, then 107.11; Yen down = Weimar Nikkei up too. Bottom line: Getting the USD right remains critical.

DAX

We saw a big move in European Equities this morning, led by the majors (FTSE +1.5% and DAX +1.2%). The immediate-term TRADE line for the DAX that matters to me is 8398, and its back above that now – no resistance to 8546.

UST 10YR

Treasury yields are continuing to track US jobless claims like a glove (pro growth signal with bullish momentum); 2.04% on the 10yr this morning widens the Yield Spread (10s minus 2s) to +179bps wide (new 3 month highs). That is powering the Financials (XLF) higher, up +5.5% for May alone.

Asset Allocation

CASH 36% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
IGT

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.  

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. 

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.

Three for the Road

TWEET OF THE DAY

"Gold has been considering an end to QE for 5 months #study"

@KeithMcCullough

QUOTE OF THE DAY

“A coach is someone who can give correction without causing resentment.” -John Wooden

STAT OF THE DAY

Mass layoffs in the U.S. (cuts involving 50 employees are more) are at the lowest level since June 2007.


THE M3: S'PORE VISIT LIMIT; MACAU LEGEND IPO; CHANGI

The Macau Metro Monitor, May 28, 2013



CASINO VISIT LIMIT ON FINANCIALLY VULNERABLE TO TAKE EFFECT ON 1 JUNE Channel News Asia

The casino visit limit on financially vulnerable Singapore citizens and permanent residents will come into effect from 1 June 2013.  The visit limit, if imposed, will set a cap on the number of times an individual may visit casinos at the integrated resorts each month.


Three types of visit limits will be introduced:  1) A Voluntary Visit Limit means individuals may apply to the National Council on Problem Gambling (NCPG) to limit their visits.  2) Family members may apply to NCPG through a Family Visit Limit to limit a family member's visit.  3) Persons found to have poor credit records or are vulnerable to financial harm due to gambling could have a Third-Party Visit Limit imposed on them by a committee of assessors appointed by NCPG.  The committee will evaluate the individual's financial vulnerability, taking into account factors such as frequency and pattern of casino visits, credit record, work situation and information provided by him and family members.


Before the committee imposes a Third-Party Visit Limit on any person, there will be an opportunity for the individual to object to the proposed visit limit. 

 

MACAU LEGEND STARTS PRE-MARKETING FOR $600 MILLION HK IPO Reuters, Macau Business

Casino operator Macau Legend Development Ltd has kicked off pre-marketing for its planned approximately $600 million Hong Kong IPO.  The company, which owns Macau Fisherman's Wharf, Landmark Macau and Pharaoh's Palace Casino, plans to price the IPO on June 21, with listing scheduled for June 27.  The IPO consists of 100 percent primary shares and would value the company at $2.4 billion.

 

Macquarie wrote in a report that Macau Legend’s gaming tables come under SJM’s casino concession and are some of the under-utilized tables that SJM has.  “Macau Legend’s desire to upgrade the facilities that these tables fit in should result in table yields rising,” it said.

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

The number of Singapore's Changi airport passengers rose 0.8% YoY in April to 4,240,461.

 

THE M3: S'PORE VISIT LIMIT; MACAU LEGEND IPO; CHANGI - cc

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – May 28, 2013


As we look at today's setup for the S&P 500, the range is 30 points or 0.46% downside to 1642 and 1.36% upside to 1672.        

                                                                                                                       

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.79 from 1.76
  • VIX closed at 13.99 1 day percent change of -0.57%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9am: S&P/CS Comp-20 City Home Price Index M/m, March, est 1%
  • 9am: S&P/Case-Shiller Index, March (prior 146.57)
  • 9am: S&P/Case-Shiller U.S. HPI Y/y, 1Q (prior 7.33%)
  • 9am: S&P/Case-Shiller U.S. HPI, 1Q (prior 135.22)
  • 10am: Richmond Fed Manuf Index, May, est -5 (prior -6)
  • 10am: Consumer Confidence, May, est. 70.5 (prior 68.1)
  • 10:30am: Dallas Fed Manuf Act., May, est -10 (prior -15.6)
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 11:30am: U.S. to sell $30b 3M bills, $25b 6M bills
  • 1pm: U.S. to sell $35b 2Y notes
  • 8pm: Bank of Japan’s Kuroda speaks at BOJ conference
  • U.S. Rates Weekly Agenda

GOVERNMENT:

    • 10am: House Transportation and Infrastructure panel holds field hearing on oversight of high-speed rail in Calif.

WHAT TO WATCH

  • Valeant to Buy Warburg Pincus’s Bausch & Lomb
  • KKR, Silver Lake challenge Yahoo for Hulu as bidding escalates
  • Yahoo’s Hulu bid said to be $600m-$800m: AllThingsD
  • AstraZeneca to buy Omthera Pharma for up to $443m
  • Apple’s iPhone distribution still examined by EU regulator
  • Freeport mine suspension may be lifted after safety review
  • Morgan Stanley said to move Asia hedge-fund event to U.S.
  • Jet to buy more Boeing planes as AirAsia enters India market
  • Siga may rise on chance to reargue damages in PharmAthene suit
  • Chevron lends Venezuelan oil venture $2b for output boost
  • Chevron plans to sell more gas from A$52b Gorgon project
  • Clarion said to buy NYC tower in midtown south for $225m
  • Li says China targets 7% annual growth this decade
  • Oil-price manipulation may affect millions, EU official says
  • “Fast & Furious 6” is top U.S./Canada film w/ $98.5m
  • Bank of Israel lowers rate a second time this month
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • U.S. consumer spending probably little changed: Eco Preview
  • BOJ Speakers, Merkel, French Open: Week Ahead May 27-June 1

EARNINGS:

    • Canadian Solar (CSIQ) 6am, ($0.78)
    • Tiffany (TIF) 7am, $0.53
    • Bank of Nova Scotia (BNS CN) 7:30am, C$1.26 - Preview
    • United Natural Foods (UNFI) 4pm, $0.64
    • EnerSys (ENS) 4:01pm, $0.80
    • Guidewire Software (GWRE) 4:01pm, $0.02
    • Wet Seal (WTSL) 4:05pm, $0.01

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Premiums Tumble From India to Hong Kong as Demand Wanes
  • Refined Sugar Sours as Premium Shrinks Amid Glut: Commodities
  • Corn Climbs to Three-Week High as Wet Weather May Slow Planting
  • Brent Crude Rises to One-Week High; WTI Halts Four-Day Decline
  • Gold Drops With Silver as Dollar Strengthens Before U.S. Data
  • Money Managers Boost Bets on Higher Cocoa Prices on NYSE Liffe
  • Aluminum Inventories Seen by IAI at 1.22 Million Tons in April
  • Gold Futures May Drop to Lowest Since 2010: Technical Analysis
  • SHFE Plans to Expand Warehouse Network in Competition With LME
  • Rebar in Shanghai Climbs 0.2%, Reversing Earlier Decline
  • Australia May Get 10% of New LNG Contracts, Wood Mackenzie Says
  • Jet Fuel Sinks in Europe as Slowdown Hits Travel: Energy Markets
  • LPG Tanker Rates Rising Near Record in U.S. Shale Surge: Freight
  • Copper Swings Between Gains and Declines on China Growth Concern

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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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