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MONDAY MORNING RISK MONITOR: CRICKETS ...

Takeaway: Portugal (sovereign credit risk) continues to go the wrong way while the rest of the world remains stable.

Key Takeaways:

 

* U.S. Financial CDS -  Assured (AGO) and MBIA (MBI) widened sharply last week, tacking on 69 and 107 bps, respectively, to their 5-yr credit default swaps. Elsewhere in the Financials complex, however, just about everything was green. The median US Financial tightened 1 bp last week .Overall, swaps tightened for 20 out of 27 domestic financial institutions. From an equity standpoint, MS and GS saw the best returns last week, rising 4.9% and 4.7%, respectively.

 

European Financial CDS - Europe's financial system continues to heal. Swaps tightened notably last week with an average decline of 9 bps and a median decline of 10 bps. Spanish, Italian, French and German banks all saw swaps tighten sharply. 

 

* Asian Financial CDS - Risk appears to be diminishing across Asia, as Indian bank swaps are finally moving lower. Chinese bank swaps also moved sharply lower this past week. We're a bit surprised to see the divergence between Indian bank swaps and equities.

 

* Sovereign CDS – Portuguese swaps remain one of the few areas globally that continues to show steady signs of deterioration. Portugal's swaps rose another 24 bps last week, bringing the spread to 557 bps. They were higher by 24 bps last week and are now up 122 bps vs the prior month. Elsewhere around the world, swaps were largely uneventful with the next largest move coming from Italy at +6 bps W/W. 

 

Financial Risk Monitor Summary

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

 • Intermediate-term(WoW): Negative / 3 of 13 improved / 3 out of 13 worsened / 7 of 13 unchanged

 • Long-term(WoW): Negative / 4 of 13 improved / 4 out of 13 worsened / 5 of 13 unchanged

 

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1. U.S. Financial CDS -  Assured (AGO) and MBIA (MBI) widened sharply last week, tacking on 69 and 107 bps, respectively, to their 5-yr credit default swaps. Elsewhere in the Financials complex, however, just about everything was green. The median US Financial tightened 1 bp last week .Overall, swaps tightened for 20 out of 27 domestic financial institutions. From an equity standpoint, MS and GS saw the best returns last week, rising 4.9% and 4.7%, respectively.

 

Tightened the most WoW: C, COF, SLM

Widened the most WoW: MBI, AGO, MMC

Tightened the most WoW: COF, MET, AXP

Widened the most MoM: MBI, AGO, MMC

 

MONDAY MORNING RISK MONITOR: CRICKETS ...  - 1

 

2. European Financial CDS - Europe's financial system continues to heal. Swaps tightened notably last week with an average decline of 9 bps and a median decline of 10 bps. Spanish, Italian, French and German banks all saw swaps tighten sharply. 

 

MONDAY MORNING RISK MONITOR: CRICKETS ...  - 2

 

3. Asian Financial CDS - Risk appears to be diminishing across Asia, as Indian bank swaps are finally moving lower. Chinese bank swaps also moved sharply lower this past week. We're a bit surprised to see the divergence between Indian bank swaps and equities.

 

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4. Sovereign CDS – Portuguese swaps remain one of the few areas globally that continues to show steady signs of deterioration. Portugal's swaps rose another 24 bps last week, bringing the spread to 557 bps. They were higher by 24 bps last week and are now up 122 bps vs the prior month. Elsewhere around the world, swaps were largely uneventful with the next largest move coming from Italy at +6 bps W/W. 

 

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5. High Yield (YTM) Monitor – High Yield rates fell 11 bps last week, ending the week at 6.46% versus 6.57% the prior week.

 

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6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 4.0 points last week, ending at 1808.

 

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7. TED Spread Monitor – The TED spread rose 0.1 basis points last week, ending the week at 23.9 bps this week versus last week’s print of 23.84 bps.

 

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8. CRB Commodity Price Index – The CRB index rose 0.2%, ending the week essentially unchanged at 291. As compared with the prior month, commodity prices have decreased -0.5% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

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9. Euribor-OIS Spread – The Euribor-OIS spread was unchanged at 13 bps last week. 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. 

 

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10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 2 basis points last week, ending the week at 2.97% versus last week’s print of 2.95%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

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11. Markit MCDX Index Monitor – Last week spreads widened 10 bps, ending the week at 94 bps versus 104 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.

 

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12. Chinese Steel – Steel prices in China fell 0.9% last week, or 33 yuan/ton, to 3561 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

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13. 2-10 Spread – Last week the 2-10 spread tightened to 245 bps, -2 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

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14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.8% upside to TRADE resistance and 1.0% downside to TRADE support.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


THE M3: MACAU ELECTIONS; MOCHA CLUBS; HK CRUISE CASINOS

THE MACAU METRO MONITOR, SEPTEMBER 16, 2013

 

 

DEMOCRATS LOSE OUT IN MACAU ELECTIONS AFP

Casino bosses and pro-Beijing candidates dominated poll results in the Chinese gambling enclave of Macau, with democrats conceding defeat on Monday.  Preliminary election results showed democrats had secured just two out of the 14 directly-elected seats in the city's lawmaking body, down from three in the previous election in 2009.  A government spokesman told AFP that results would be validated in the next few days, with any appeals going to court.

 

A record 145 candidates were vying for seats, but turnout was down 5% on 2009 with around 152,000 voting, the government said.  The remaining 19 seats in the 33-strong legislature are either appointed by the chief executive -- who is selected by Beijing -- or chosen by business and industry groups.

 

MOCHA CLUBS TO SHUT DOWN TWO SLOT MACHINE PARLOURS Macau Business

MPEL subsidiary Mocha Clubs will shut two slot machine parlours on November 26, the Portuguese-language Jornal Tribuna de Macau reports.  MPEL CEO Lawrence Ho said the Mocha Hotel Taipa Best Western and the Mocha Lan Kwai Fong parlour would close.  The Mocha Marina Plaza parlour in the city centre would be moved.

 

A Gaming Inspection and Coordination Bureau spokesman said of the five slot parlours that must be relocated until November 26, only one Treasure Hunt Slot Lounge, run by SJM Holdings Ltd, has applied to suspend their operations.  New rules will permit parlours inside five-star hotels, within 500 metres of a casino or at resorts in less densely populated areas.

 

 

FLOATING CASINOS FROM HONG KONG STEALING MACAU GAMBLERS Businessweek

Visitors on the eight casino boats that leave Hong Kong each night rose 9% to 615,328 in 1H 2013, aiding operators such as Success Universe Group Ltd and Genting HK Ltd.  

 

“The cruise ship can be a good substitute for mainland tourists,” said Hoffman Ma, deputy chairman of Success Universe, which doubled profits from its casino ship to HK$2.15 million ($277,000) in 1H 2013.  Success Universe’s boat and other Hong Kong ships leave port late each evening, open their casinos once in international waters, and allow patrons to gamble through the night.  A big benefit is that the boats pay no taxes on their receipts, according to Success Universe, versus the 39% gaming levy paid on gross revenue by Macau’s casinos.

 

Rooms in Macau averaged $175 a night in July, according to the government, while a room on a Hong Kong casino boat can cost as little as HK$400 ($52).  Mainland tourists don’t need a separate visa to board the cruise ships once they are in Hong Kong, an added perk for affluent business people who want to stay under the radar.


Casino operators say they’re not worried about the competition.  The casino boats offer little in terms of dining and shopping and do a fraction of the business of Macau’s gambling industry.  Their impact “is minimal,” Ambrose So, SJM's CEO said.  “The pie is growing bigger and some money overflows there.”


Summer(s) Is Over

Client Talking Points

USD

So, what does down US Dollar mean? It means that everything "bubbly" (Sovereign Bonds, Emerging Markets, etc. other than Commodities) are up this morning. Since consensus leaned way too bearish on equities in August, you might very well see a rip to a lower-all-time high in the S&P 500 that you can sell into today. We will soon see. Don't forget that the market is also discounting the Fed being behind the curve on growth.

10YR

Treasuries, Gilts, Bunds, etc are all bid up to lower-highs this morning as we probe the low-end of my immediate-term risk range for UST 10yr yields. 2.80-2.99 is the range now. We are not short Treasuries here. But we very well may be by the day’s end. There is more bullish US economic data plus Fed tapering all pending this week.

COMMODITIES

Yes - I’m actually shocked that Gold is down on this. But markets tend to shock us. Part of the blow off in Gold and Oil this morning is the net long position in both coming off year-to-date highs in the last week of August. Oil’s net long (futures/options) position dropped -5.2% last week (Gold’s was -16%) as both commodity prices led global macro decliners week-over-week.

Asset Allocation

CASH 30% US EQUITIES 24%
INTL EQUITIES 22% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
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. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Lots of people said "tapering" would be the end of stocks in 2013 - it was the end of Gold Bonds @KeithMcCullough

QUOTE OF THE DAY

“It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time" - Winston Churchill

STAT OF THE DAY

Boom! Pimco's Total Return Fund has lost more than $41 billion, or 14% of its assets, during the past four months through losses and investor withdrawals. Got #RatesRising yet?


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September 16, 2013

September 16, 2013 - dtr

 

BULLISH TRENDS

September 16, 2013 - 10yr

September 16, 2013 - spx

September 16, 2013 - dax

September 16, 2013 - ftse

September 16, 2013 - dxy

September 16, 2013 - euro

September 16, 2013 - oil

September 16, 2013 - natgas

 

BEARISH TRENDS

September 16, 2013 - VIX

September 16, 2013 - yen
September 16, 2013 - gold

September 16, 2013 - copper

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 16, 2013


As we look at today's setup for the S&P 500, the range is 35 points or 1.13% downside to 1669 and 0.95% upside to 1704.                      

                                                                                                         

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: 2.43 from 2.45
  • VIX  closed at 14.16 1 day percent change of -0.91%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Manufacturing, Sept., est. 9 (prior 8.24)
  • 9:15am: Industrial Prod. M/m, Aug., est. 0.5% (prior 0.0%)
  • 9:15am: Capacity Util., Aug., est. 77.9% (prior 77.6%)
  • 9:15am: Manuf. Production, Aug., est. 0.5% (prior -0.1%)
  • 11am: Fed to purchase $750m-$1b in 2024-2031 sector
  • 11:30am: U.S. to sell $30b 3M, $25b 6M bills
  • 4pm: USDA crop-conditions report

GOVERNMENT:

    • UN inspectors who investigated evidence that chemical weapons were used in Syria may release initial findings as soon as today
    • House, Senate in session
    • Financial Accounting Standards Board, International Accounting Standards Board holds joint public roundtable meeting in London on revised exposure drafts on leases

WHAT TO WATCH:

  • Summers withdraws from consideration for Fed chairmanship
  • Pimco says S-T debt to benefit as Summers withdraws
  • Hurricane Ingrid nears Mexico; Manuel weakens to depression
  • Westfield sells 7 U.S. malls to Starwood for $1.6b
  • China Telecom cuts subsidy on new Apple iPhones: analysts
  • Kerry seeks to build support for Syria chemical arms plan
  • Danske Bank CEO Kolding resigns; replaced by Borgen
  • Air France to give up use of Boeing 747s by 2016 due to cost: Echos
  • Repsol in talks w/ Qatar, Sinopec, Temasek on Gas Natural sale: Confidencial
  • Repsol said to seek N. American oil co. acquisition: WSJ
  • KPN agrees to $4.9b tax book loss on German unit sale
  • “Insidious: Chapter 2” beats De Niro to top wknd sales
  • Saudi Prince Alwaleed to hold Twitter stake after IPO: Reuters

EARNINGS:

    • Cvent (CVT) Post-mkt, $0.05

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brent Falls to Four-Week Low as Syria Talks Seen Averting Strike
  • Gold Bulls Cut Wagers as Goldman Sees More Losses: Commodities
  • Soybeans Drop as Rain Seen Stabilizing Midwest Crop Conditions
  • Gold Declines in London as Haven Demand Subsides on Syria
  • Sugar Output Estimate in India Increased 5.5% on Monsoon Rains
  • Copper Pares Advance in London, Trades Up 0.1% at $7,047 a Ton
  • Rebar Futures Decline to Six-Week Low as Mills Increase Output
  • Montepeque of Platts Caught in Battle Over Oil Assessments
  • Gold ETF Holdings Return to Lowest Levels Since 2010: BI Chart
  • Hedge Funds Cut Bullish Oil Bets on Syria Talks: Energy Markets
  • Hurricane Ingrid Nears Mexico as Manuel Dissipates Over Land
  • JSE May End Travel-Cost Fee for Biggest S. Africa Wheat Area
  • India Cuts Benchmark Import Price of Gold to $432 Per 10 Grams
  • Sugar Drops as Investors May Sell on India Outlook; Cocoa Rises

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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