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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 11, 2013


As we look at today's setup for the S&P 500, the range is 26 points or 0.62% downside to 1682 and 0.91% upside to 1708.                      

                                                                                                         

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: 2.34 from 2.34
  • VIX closed at 16.48 1 day percent change of -15.92%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:55am: U Mich. Confidence, Oct. prelim, est. 75.9 (pr 77.5)
  • 11am: Fed’s Powell speaks on monetary policy in Washington
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 1pm: Fed’s Rosengren at Council of Foreign Relations in N.Y.
  • 1pm: Baker Hughes rig count

GOVERNMENT:

    • 9am: Natural Resources Defense Council, Sierra Club, Canadian scientists and activists briefing on Canadian govt, climate policies, tar sands expansion, Keystone XL
    • 10am: Joint Economic Cmte hearing on fiscal sustainability, economic growth
    • 1:30pm: G-20 members hold IMF/World Bank press conferences

WHAT TO WATCH:

  • House Republicans enter talks with Obama on debt-ceiling deal
  • Default doubters repudiated by Republican economists citing harm
  • Energy Future said near bankruptcy loan exceeding $3b
  • Pimco said to raise $3.5b for Bravo II credit fund
  • Del Monte Pacific to buy U.S. food brands for $1.68b
  • Twitter said to pay 3.25% bankers’ fee in IPO topping $1b
  • Potash Corp. cuts profit forecast amid market uncertainty
  • Device sales delays possible as shutdown halts FCC reviews
  • Brevan Howard said to start fund run by ex-Deutsche Bank team
  • China Greenland to invest in $5b New York property deal
  • Google moved EU8.8b in royalty payments to Bermuda in 2012: FT
  • ESM’s Regling says Greece widely expected to need new bailout
  • Royal Mail surges on opening following oversubscribed IPO
  • U.S. Debt Deadline, China GDP, Google, GE: Wk Ahead Oct. 12-19

EARNINGS:

    • JPMorgan Chase (JPM) 7am, $1.29 - Preview
    • Webster Financial (WBS) 8am, $0.49
    • Wells Fargo (WFC) 8am, $0.97 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Corn Tumbles to Three-Year Low on U.S. Harvest, Ethanol Mandate
  • Gold Analysts Bearish on Signs of U.S. Compromise: Commodities
  • IEA Sees Oil Output From Outside OPEC Rising Most Since 1970s
  • Cocoa Jumps to Highest in Almost Two Years as Supply Falls Short
  • Copper Rises for Second Day on Strengthening Chinese Car Sales
  • WTI Crude Set for Weekly Decline; IEA Sees Non-OPEC Supply Boom
  • Gold Heads for Second Weekly Loss as U.S. Impasse Seen Ending
  • Rebar Gains for Second Week on China Restocking, Iron Ore Prices
  • Falling Copper Grades Show Super Cycle Intact: Chart of the Day
  • Coal 4-Year Low Lures Utilities Ignoring Climate: Energy Markets
  • U.S. Oil Boom Races Against Red Queen as Shale Wells Fade Fast
  • Shale Ascendancy in Europe Displaces Pipeline Gas: Bear Case
  • Lukashenko Calls for Potash ‘Cartel’ Revival to Boost Price
  • Sugar Climbs in New York as Brazil May Slow Sales for Now

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

 

 

 

 

 

 

 

 

 

 

 

 

 



FLASH CALL: DISMANTLING DARDEN

Please join us for a flash call titled “Dismantling Darden” tomorrow, October 11th at 12:00pm EDT.  On the call we will discuss the opportunities we see to significantly increase shareholder value at Darden.  We have pursued this topic extensively and put together a 30 page Black Book, highlighting Darden’s inefficiencies and our vision for a potential turnaround.

 

 

TOPICS OF DISCUSSION INCLUDE:

  • Reshaping the enterprise
  • Operating trends among the worst in the casual dining industry
  • Darden’s bloated cost structure
  • Sum of the parts valuation
  • What are the implications of the Barington Capital news and what is next for the company?

 

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 493295#
  • Materials: CLICK HERE (Will download one hour prior to the call)

 

 

If you have any questions, please email or call.

 

 

 

Howard Penney

Managing Director


 

 


Attention Students...

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INITIAL CLAIMS: DISTORTION REVERSAL

Takeaway: Despite the headline increase, today's claims data is very strong. Given the dearth of fundamental data, stick with the price signal here.

STICK WITH THE SIGNAL

Policy issues have dominated headlines and driven most of the equity and fixed income market price action over the last few weeks.  

 

The private sector data we have received for September has been largely equivocal with ISM Mfg and Consumer Credit marginally higher sequentially, Mortgage Applications and Small Business/Consumer confidence flat, and ISM services and Vehicle sales down marginally. 

 

The labor market strength, however, has not been equivocal.  Inclusive of today’s jump in Initial claims (which is still positive after adjusting for the CA computer system and government shutdown impacts) the trend in the labor market remains decidedly positive. More detail on this week's claims data below.  

 

From an Investment Management perspective, with the bulk of federal government sourced data releases embargoed or unavailable (ie. a dearth of fundamental data), our Prices Rule Risk Management model becomes an increasingly important signaling mechanism for driving portfolio decisions.   

 

So what are the key metrics and levels that matter right here?  The Dollar, VIX, and S&P500.

 

To reiterate the key levels of focus Keith highlighted in this morning’s Early Look. 

 

  1. U.S. Dollar:  The $USD long-term TAIL line of support = $79.21
  2. VIX:  VIX TREND Support sits at $18.98
  3. S&P500:  SPX TREND Resistance sits at $1663

 

In short, with the USD holding above its TAIL line, if the VIX can breach $18.98 on the downside and the SPX can hold 1663, the risk-reward to being long shifts positive and we cover more shorts and play for the 23 handles of immediate term upside in equities.  If the VIX and SPX fail to breach & hold their respective levels, we continue to keep gross exposure relatively low, net exposure tight and sit on our hands a bit longer. 

 

Dollar Up + Rates Up + Stocks Up remains the constellation of price factors we want to see persist to remain constructive beyond the positive, immediate term TRADE setup.   

 

Below is the breakdown of this morning's claims data, along with some Financial sector specific takeaways, from the Hedgeye Financials team.  If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

 

- Hedgeye Macro  

 

INITIAL CLAIMS: DISTORTION REVERSAL - Dollar Up Rates Up Stocks Up

 

INITIAL CLAIMS: DISTORTION REVERSAL - Eco Summary Table

 

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INITIAL CLAIMS:  Not So Fast

We've been singing the praises of the initial jobless claims data for a while now, particularly as it showed noted divergence vs some of the other labor market data series. This morning we found out that at least a portion of the recent strength (since the start of September) was attributable to shenanigans in California new software for processing claims. For the last 4 weeks, since roughly the start of September, California has had a backlog of claims due to difficulties arising from their new software system. This past week, they finally got the bugs out of it and caught up. The effect was an increase of ~33k SA jobless claims. Total SA claims rose by 66k this week, and half that was attributable to CA, said a Labor Dept spokesperson. Beyond this, there was a further 15k increase this week from defense companies laying people off temporarily due to the government shutdown.

 

What we've done in the chart below is reconstruct the last five weeks of data to reflect CA's issues and the 15k temp layoffs from defense. The takeaway is that the trend is intact. Rolling NSA claims, adjusted for these issues, was lower by 14.1% in the latest week, which is almost right in line with the trendline since the start of the year, and only nominally weaker than the best print we've seen YTD of -14.9% 3 weeks ago.

 

The bottom line is that this morning's data looks terrible, but the underlying trends in the labor market remain exceptionally strong. We would reiterate our bullish stance on being levered to the ongoing jobs recovery. This morning we flagged Capital One (COF) in a note as being a great way to play this theme.

 

INITIAL CLAIMS: DISTORTION REVERSAL - JS 1

 

Nuts & Bolts

As there was no revision to the prior week's data, SA initial jobless claims rose 66k to 374k from 308k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 20k WoW to 325k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.7% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -18.2%, but this reflects the impact of the CA distortion.

 

INITIAL CLAIMS: DISTORTION REVERSAL - JS 2

 

INITIAL CLAIMS: DISTORTION REVERSAL - JS 3

 

INITIAL CLAIMS: DISTORTION REVERSAL - JS 4

 

INITIAL CLAIMS: DISTORTION REVERSAL - JS 5

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


INITIAL CLAIMS: TOO GOOD TO BE TRUE?

Takeaway: Our first impression of the labor market data this morning was that it looked terrible, but upon closer inspection it's actually great.

Not So Fast

We've been singing the praises of the initial jobless claims data for a while now, particularly as it showed noted divergence vs some of the other labor market data series. This morning we found out that at least a portion of the recent strength (since the start of September) was attributable to shenanigans in California new software for processing claims. For the last 4 weeks, since roughly the start of September, California has had a backlog of claims due to difficulties arising from their new software system. This past week, they finally got the bugs out of it and caught up. The effect was an increase of ~33k SA jobless claims. Total SA claims rose by 66k this week, and half that was attributable to CA, said a Labor Dept spokesperson. Beyond this, there was a further 15k increase this week from defense companies laying people off temporarily due to the government shutdown.

 

What we've done in the chart below is reconstruct the last five weeks of data to reflect CA's issues and the 15k temp layoffs from defense. The takeaway is that the trend is intact. Rolling NSA claims, adjusted for these issues, was lower by 14.1% in the latest week, which is almost right in line with the trendline since the start of the year, and only nominally weaker than the best print we've seen YTD of -14.9% 3 weeks ago.

 

The bottom line is that this morning's data looks terrible, but the underlying trends in the labor market remain exceptionally strong. We would reiterate our bullish stance on being levered to the ongoing jobs recovery. This morning we flagged Capital One (COF) in a note as being a great way to play this theme.

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 20 v2

 

Nuts & Bolts

As there was no revision to the prior week's data, SA initial jobless claims rose 66k to 374k from 308k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 20k WoW to 325k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.7% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -18.2%, but this reflects the impact of the CA distortion.

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 1

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 2

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 3

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 4

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 5

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 6

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 7

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 8

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 9

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 10

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 11

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 12

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 13

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 19

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 14

 

Yield Spreads

The 2-10 yield spread was unchanged at 229 bps in the past week. The third quarter average yield spread was 234 bps, a 63 bps increase vs the 2Q average of 171 bps. While the curve has come under some pressure of late with tapering speculation waning, the bottom line is that thus far 4Q is running at an average spread of 2.29%, or just 5 bps lower than the average for the third quarter. This 3Q lift will help alleviate some of the pressure on bank NIMs, but what it will really take ultimately will be the Fed lifting the short end of the curve.

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 15

 

INITIAL CLAIMS: TOO GOOD TO BE TRUE? - 16

 

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT



PODCAST: McCullough: Fade Fear

Hedgeye CEO Keith McCullough explains to clients on this morning's Macro Conference Call why this is the first morning since Bernanke decided not to taper (9/18) that he's advising people to buy-the-damn-dip.  

 


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