prev

PORTUGAL, PORTUGAL, PORTUGAL

Takeaway: Portugal is posting a massive negative divergence vs the rest of the world. Sovereign CDS are going parabolic. Greece/Cypress II?

This note was originally published July 15, 2013 at 09:44 in Financials

Key Takeaways:

Portuguese sovereign swaps rose 83 bps last week to 556 bps, and are up 185 bps in the last month (+50%). Since 5/22, Portguese swaps have doubled off their lows of 274 bps. By comparison, the rest of Europe is up 7-12% MoM. It's worth asking whether Portugal is going to soon become a new hotbed of focus. 

 

Meanwhile, the situation in the U.S. continues to improve following Bernanke's talk-down on tapering mid-last week. High yield rates fell 27.0 bps last week, ending the week at 6.31% versus 6.58% the prior week. Currently long-term rates are heading toward what we consider higher lows after recently putting in a higher high.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 7 of 13 improved / 1 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Negative / 2 of 13 improved / 5 out of 13 worsened / 6 of 13 unchanged

 • Long-term(WoW): Positive / 4 of 13 improved / 0 out of 13 worsened / 9 of 13 unchanged

 

PORTUGAL, PORTUGAL, PORTUGAL - 15

 

1. American Financial CDS -  Swaps tightened for 27 out of 27 domestic financial institutions. Mortgage insurers posted sharp improvements WoW, with MTG and RDN dropping 43 and 49 bps, respectively. We've been using MI swaps as a proxy of sorts around sentiment of the rate of recovery in the housing market. After stalling out for a month or so, it's a worthwhile takeaway to see swaps again moving (aggressively) in the right direction.

 

Tightened the most WoW: ACE, XL, GNW

Tightened the least WoW: COF, AGO, WFC

Tightened the most WoW: MET, XL, AIG

Widened the most MoM: GS, MBI, AGO

 

PORTUGAL, PORTUGAL, PORTUGAL - yup

 

2. European Financial CDS - Most of Europe's banking system was uneventful last week. Spanish, Portguese and some Italian banks posted noteworthy increases, however.

 

PORTUGAL, PORTUGAL, PORTUGAL - 2

 

3. Asian Financial CDS - After seeing risk profiles steadily deteriorate for weeks, Chinese and Indian financials saw their high water mark swap quotes recede further last week. Chinese banks were down an average of 16 bps WoW, while Indian swaps came in 31 bps, on average  

 

PORTUGAL, PORTUGAL, PORTUGAL - 17

 

4. Sovereign CDS – Sovereign swaps were almost universally tighter last week, with one major exception. Portuguese swaps widened 83 bps WoW to 556. In the past month, Portuguese swaps have widened out 185 bps. This is a significant negative divergence from the rest of Europe. Is it too soon to begin asking whether Portugal is beginning to fulfill its destiny as Greece II? The data is starting to suggest that.

 

PORTUGAL, PORTUGAL, PORTUGAL - 18

 

PORTUGAL, PORTUGAL, PORTUGAL - 3

 

PORTUGAL, PORTUGAL, PORTUGAL - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 27.0 bps last week, ending the week at 6.31% versus 6.58% the prior week.

 

PORTUGAL, PORTUGAL, PORTUGAL - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 11.0 points last week, ending at 1795.83.

 

PORTUGAL, PORTUGAL, PORTUGAL - 6

 

7. TED Spread Monitor – The TED spread rose 0.3 basis points last week, ending the week at 23.46 bps this week versus last week’s print of 23.19 bps.

 

PORTUGAL, PORTUGAL, PORTUGAL - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 2.2 points, ending the week at -0.95 versus -3.1 the prior week.

 

PORTUGAL, PORTUGAL, PORTUGAL - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 12 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. 

 

PORTUGAL, PORTUGAL, PORTUGAL - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Deposits fell by 17 billion Euros last 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.  

 

PORTUGAL, PORTUGAL, PORTUGAL - 10

 

11. Markit MCDX Index Monitor – Last week spreads tightened 1 bp, ending the week at 95.02 bps versus 96.04 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. 

 

PORTUGAL, PORTUGAL, PORTUGAL - 11

 

12. Chinese Steel – Steel prices in China rose 0.1% last week, or 3 yuan/ton, to 3409 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

PORTUGAL, PORTUGAL, PORTUGAL - 12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 227 bps, 15 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

PORTUGAL, PORTUGAL, PORTUGAL - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.3% upside to TRADE resistance and 2.3% downside to TRADE support.

 

PORTUGAL, PORTUGAL, PORTUGAL - 14

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

Jonathan Casteleyn, CFA, CMT

203-562-6500

jcasteleyn@hedgeye.com

 

 


Greece: Just Ugly

Takeaway: The slow-motion train wreck that is Greece is crashing again.

In case you missed it, the slow-motion train wreck that is Greece is crashing again. The stock market there finished in the red yet again today, down -0.52%.

 

Greece: Just Ugly - Greece

 

Get this: Since May 17 Greece has plummeted -31%. Illiquid markets are becoming more enticing on the short side, weekly, at this point.

 

#Ugly


REPLAY: Q3 2013 MACRO THEMES CALL

Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted their quarterly Macro Themes conference call in which they detailed their Top 3 Global Macro Investment themes for 3Q13.  The Replay and Presentation Materials can be accessed via the links below.

 

REPLAY:  CLICK HERE 

MATERIALS:  CLICK HERE

 

Q3 THEMES:

1. #RatesRising: The 30Y bull cycle in bonds is over.  We discuss the cross-asset class implications of the reversal and how to be positioned for the ongoing deflation of Bernanke's last (and largest) bubble.

  

2. #DebtDeflation: With total outstanding debt equal to three times equity, we give caution to the impact of debt deflating and offer investment vehicles to play this theme.


3. #AsianContagion: China sneezes and the rest of Asia catches the flu. #RisingRates and #StrongDollar continue to perpetuate #EmergingOutflows across the developing Asia region while a likely resurgence of positive sentiment surrounding the Abenomics agenda and continued yen weakness should help Japanese equities continue to outperform the region.  

 

If you are having trouble accessing this replay or would like more information contact .


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

FOUR FOR FOUR!

That’s a good stat for baseball but not so good when it comes to regional gaming operators missing estimates.

 

 

Estimates keep coming down yet regional gamers keep missing.  Q2 should be a rerun.  The following table details our EBITDA estimates.  Contact us if you would like to see our models.  

 

FOUR FOR FOUR! - H11

 

Note that we expect same-store EBITDA to fall for each of the four regional operators for the 2nd straight quarter.  With the exception of PENN, it should be 3 quarters in a row.  The economy is doing better and housing prices have improved.  What’s going?  We think oversupply and lack of demand are the problems.  As we illustrated in our 05/17/13 note “CHART DU JOUR: ADMITTING THE PROBLEM,’ the positive macro hasn’t overcome the long-term secular headwind of a declining slot customer base.

 

FOUR FOR FOUR! - B2


European Banking Monitor: Portugal, Portugal, Portugal

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:

Portuguese sovereign swaps rose 83 bps last week to 556 bps, and are up 185 bps in the last month (+50%). Since 5/22, Portuguese swaps have doubled off their lows of 274 bps. By comparison, the rest of Europe is up 7-12% MoM. 

 

The CDS increases last week from Spanish, Portuguese, and Italian banks reflect heightened political instability at the country level.  Spain's corruption scandal of slush kickbacks to PM Rajoy's ruling party are reverberating even louder as new sources confirm the payments. Portugal's government remains on the precipice of snap elections over pushback on austerity and the fall-out from the resignations of the finance and foreign ministers in the first week of July.  Finally, Italy's coalition government remains fractured with persistent threats based on impending court rulings on Silvio Berlusconi.

 

We expect this political risk to carry through much of the summer. Despite calls from Portugal's President that an agreement with the main opposition will be reached shortly, we caution that underlying popular tensions in Portugal (but also across much of the periphery) are here to say given deep structural imbalances that fuel unrest. 

 

 

European Financial CDS - Most of Europe's banking system was uneventful last week. Spanish, Portuguese and some Italian banks posted noteworthy increases, however.

 

European Banking Monitor: Portugal, Portugal, Portugal - vv.banks

 

Sovereign CDS – Sovereign swaps were almost universally tighter last week, with one major exception. Portuguese swaps widened 83 bps WoW to 556. In the past month, Portuguese swaps have widened out 185 bps. This is a significant negative divergence from the rest of Europe. Is it too soon to begin asking whether Portugal is beginning to fulfill its destiny as Greece II? The data is starting to suggest that.

 

European Banking Monitor: Portugal, Portugal, Portugal - vv.sov 1png

 

European Banking Monitor: Portugal, Portugal, Portugal - vv. sov2

 

European Banking Monitor: Portugal, Portugal, Portugal - vv.sov 3

 

Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 12 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: Portugal, Portugal, Portugal - vv.euribor

 

ECB Liquidity Recourse to the Deposit Facility – Deposits fell by 17 billion Euros last 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: Portugal, Portugal, Portugal - vv.facility


Morning Reads on Our Radar Screen

Takeaway: A look at some stories on Hedgeye's radar screen.

Keith McCullough – CEO

China's economic growth at 7.5% in April to June period (via BBC)

U.K. House Prices Climb as Rightmove Doubles Forecast (via Bloomberg)

India Inflation Reaches Three-Month High as Rupee Fans Costs (via Bloomberg)

 

Morning Reads on Our Radar Screen - earth2

 

Kevin Kaiser – Energy

The Erstwhile Hedge Fund King of Akron, Ohio’s Very Difficult Summer (via SIRF)

Charting the effect of China's cooldown (via BBC)

 

Tom Tobin – Healthcare

Will Obamacare take bite out of dental coverage? (via MarketWatch)

UnitedHealth opts out of Illinois insurance exchange (via Crain’s Chicago Business)

Sebelius announces ACA funding aid in Phoenix (via trivalleycentral.com)

The hospital as hotel -- Affordable Care Act drives new medical-center amenities (via The Journal Times)

 

Josh Steiner – Financials

Citigroup Profit Beats Estimates as Stock Trading Gains (via Bloomberg)

30 Year Fixed National Avg now 4.48% (via Bloomberg)


Jonathan Casteleyn - Financials

Goldman Sachs’s Fabulous Fab Faces SEC Fraud Trial Today (via Bloomberg)

 

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next