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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 6, 2014


As we look at today's setup for the S&P 500, the range is 35 points or 0.78% downside to 1817 and 1.13% upside to 1852.                                       

                                                                                        

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: 2.58 from 2.60
  • VIX closed at 13.76 1 day percent change of -3.30%

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: ISM Non-Mfg Composite, Dec., est. 54.5 (prior 53.9)
  • 10am: Factory Orders, Nov., est. 1.7% (prior -0.9%)
  • 11:00am: Fed to purchase $1b-$1.5b in 2036-2043 sector
  • 11:30am: U.S. to sell $28b 3-mo. bills, $26b 6-mo. bills

GOVERNMENT:

    • Senate to vote on confirmation of Yellen as Fed Chairman
    • Senate to consider unemployment benefit extension
    • FEMA’s David Miller delivers opening remarks at National Research Council meeting on flood insurance, 10:15am
    • Liz Cheney to end bid for Wyoming Senate seat, CNN, NYT report

WHAT TO WATCH:

  • Yellen poised for Senate confirmation amid taper pullback
  • JPMorgan’s Madoff case penalties may be announced Tues.: WSJ
  • Boeing to build 777X at Seattle hub as union drops pensions
  • Liberty’s Sirius deal may help finance TW Cable offer
  • Men’s Wearhouse starts tender for Jos. A Bank, nominates two
  • Carlyle, KKR said to be in $1.2b talks to buy Fleury
  • Teva said near to naming Vigodman CEO after Levin ouster
  • Intel CEO Krzanich gives preshow keynote for International CES
  • JPMorgan settles Pittsburgh bank suit probing U.S. deal
  • Google rolls out alliance to bring Android into car systems
  • GM’s OnStar in talks w/Chinese providers for 4G car services
  • Nvidia chip update narrows PC-smartphone gap to target gamers
  • Ford China deliveries surge 49% in 2013, overtaking Toyota
  • U.S. office rents increase in gradual market recovery: Reis
  • Apple changes board bylaws in step to address diversity issue
  • Bitcoin tops $1,000 again on Zynga accepting virtual currency

EARNINGS:

    • Park Electrochemical (PKE) 6:30am, $0.28
    • Sonic (SONC) 4:01pm, $0.13

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Declines Amid Concern Demand Is Poised to Slow in China
  • Gold Swings Below 3-Week High as Investors Weigh Dollar, Demand
  • Gold Analysts Get Most Bullish in a Year After Rout: Commodities
  • Frost May Damage as Much as 15% of Florida Orange Crop, MDA Says
  • Brent Rises for First Time in Five Days on U.S. Cold Snap, Iraq
  • Sugar Extends Two-Week Low on Excess Supplies; Coffee Advances
  • ‘Polar Pig’ Threatens Coldest U.S. Weather in Two Decades
  • LME Hires Sloan from NYSE Euronext as COO, Head of Strategy
  • Cotton Imports by China May Tumble to Six-Year Low, Group Says
  • China Rejecting U.S. Corn as First Shipment From Ukraine Arrives
  • China Smog Drives Lump Ore to Record Premium: Chart of the Day
  • U.S. Winter-Wheat Plantings Rise to Six Year High, Survey Shows
  • Gold’s Point-Figure Signals Further Declines: Technical Analysis
  • U.S. Exporters Sell Wheat to Unknown Destination, Corn to Mexico
  • Wheat Extends Rally as Cold Weather Threatens U.S. Crop Outlook

THE HEDGEYE DAILY OUTLOOK - 5A

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6A

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 


January 6, 2014

January 6, 2014 - Slide1

 

BULLISH TRENDS

January 6, 2014 - Slide2

January 6, 2014 - Slide3

January 6, 2014 - Slide4

January 6, 2014 - Slide5

January 6, 2014 - Slide6

January 6, 2014 - Slide7

January 6, 2014 - Slide8

 

BEARISH TRENDS

January 6, 2014 - Slide9

January 6, 2014 - Slide10

January 6, 2014 - Slide11
January 6, 2014 - Slide12

 


Macro Tea Leaves

Client Talking Points

JAPAN

They finally opened the Japanese stock market and it got tagged on up Yen. The Nikkei starts the year -2.4% as the crowd leans very long of it (and short Yen – futures/options contracts show a massive net short position of -143,384 Yen contracts).

CHINA

It's more #GrowthSlowing economic data out of China (Services PMI down to 50.9 in December versus 52.5 November). That took the Shanghai Composite down another -1.8% overnight to -3.3% to start 2014 year-to-date (versus -3.9% all in in 2013).

OIL

The biggest loser in Global Macro next to Thailand stocks last week was Oil (WTI -6.3%, Brent -4.7%). The US Dollar was +0.5%. That of course is a good thing for Consumption (US Consumer Discretionary was up +0.1% (XLY) on a down -0.5% S&P 500 week); Oil VIX ripped +31% on that over 20. Brent is back below our Hedgeye TAIL resistance of 108.89.

Asset Allocation

CASH 34% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 6%
FIXED INCOME 0% INTL CURRENCIES 30%

Top Long Ideas

Company Ticker Sector Duration
GHL

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL.  So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.

FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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.

Three for the Road

TWEET OF THE DAY

TREASURIES: 2.98% 10yr sitting right in the middle of a manageable 2.90-3.08% risk range @Hedgeye

QUOTE OF THE DAY

"The greatest mistake you can make in life is to be continually fearing you will make one." - Elbert Hubbard

STAT OF THE DAY

The world’s biggest economies will need to refinance $7.43 trillion of sovereign debt in 2014 as bond yields begin to climb from record lows, threatening to raise borrowing costs while nations struggle to bring down elevated budget deficits. Bloomberg


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THE M3: CONCESSION RUMORS; BYI/SHFL; CASINO PAY; GONGBEI-HENGQIN RAILWAY

THE MACAU METRO MONITOR, JANUARY 6, 2014

 

 

RUMOR HAS IT THAT 3 SUB-CONCESSIONS BE APPROVED AS CONCESSIONS  Apple Daily News

Rumor has it that Macau government may issue a 7th gaming license.  Secretary for Economy and Finance Tam earlier said the authority had no such plan at the current stage.  However, sources close to the Macau government said the authority is considering clarifying the roles of the concessions and the sub-concessions, indicating the existing three concessions and three sub-concessions may all be approved as concessions.  SJM Chief Executive Officer Ambrose So said the potential move of the government will make it hard for SJM to get a high spin-off fee.

 

BALLY TO KEEP FIGHTING SHFL'S PATENT BATTLE Macau Business

BYI says it will to “vigorously defend” its right to sell electronic table games in Macau.  It was the first statement by BYI on SHFL Asia's patent claims here.   SHFL and LT Game are in dispute over the Macau patent for a multi-game electronic table game with a live dealer.  BYI alleged that Oriental Patron, a Hong Kong financial services firm, had issued last week factually incorrect statements about SHFL's live multi-game product in the Macau and the mainland.  Oriental Patron said Paradise Entertainment, the owner of LT Game, held the patent to sell the electronic games.

 

CASINO PAY INCREASE OF 5% SETS WAGE BENCHMARK Macau Business

Wages could increase by between 5-10% in 2014.  Recruitment agencies told the newspaper that low unemployment and demand for staff would make it harder for small and medium enterprises to keep their employees.

 

GONGBEI-HENGQIN RAILWAY TO BEGIN CONSTRUCTION END OF THIS MONTH Hou Kong Daily 

The extension line of the Guangzhou-Zhuhai rail section, Gongbei to Hengqin section, is scheduled to commence construction this month, and due to finish in 2017.  Meanwhile, Macau LRT line extension project to Hengqin has also started inviting interested tenders for the project. This means that the Guangzhou-Zhuhai intercity rail extension line will seamlessly be connecting with Macau from Hengqin.



What's Going On?

“If you really don’t know what’s going on, you don’t even have to know what’s going on to know what’s going on.”

-George Goodman

 

Sadly, one of my favorite authors and financial writers, George Goodman, passed away this weekend. He was 83 years old. After graduating magna cum laude from Harvard and winning a Rhodes Scholarship, Goodman published his first novel, The Bubble Makers – then went onto to join the “US Army Special Forces in 1954 in the intelligence group known as Psywar.” (Wikipedia)

 

“Goodman’s first non-fiction book, The Money Game (1968), was a number one bestseller for over a year. In the book he memorably introduced the catchphrase “assume a can opener” to mock the tendency of economists to make unjustified assumptions.” (Wikipedia)

 

Over the years, I’ve cited The Money Game many times. Today’s quote comes from that book and my Early Look is dedicated to Goodman who taught me a great deal while he wasn’t watching. Taped on the insert of one of my notebooks is that “a man is really at his best, his most fulfilled, when he’s on his way to becoming what he is going to become…” I’m grateful for that opportunity, every day.

 

Back to the Global Macro Grind

 

If you really don’t know what’s going on in markets for 2014 YTD, now you know. It’s sitting right there in front of you on your screen. That is the score. That is Mr. Macro Market’s Game. And we’re all tasked with playing the game that’s in front of us.

 

On the heels of Asian Equity markets getting banged up last week, Japan opened 2014 for stock market trading overnight and got smoked for a -2.4% drop in the face of a barely up Japanese Yen. Get the Yen right, and you’ll get the Nikkei right – for now.

 

China reported yet another #GrowthSlowing data point last night as well. Its Services PMI print for DEC slowed to 50.9 versus 52.5 in NOV and Chinese stocks dropped another -1.8% on that. For 2014 YTD, the Shanghai Composite is already down -3.3%.

 

With Japan and China -2.4% and -3.3%, respectively, what other big Equity indices are down so far for the YTD?

  1. SP500 -0.9%
  2. MSCI World Index -0.9%
  3. MSCI Emerging Latin American Index -2.1%
  4. MSCI Emerging Market Index -2.3%
  5. MSCI Asia ex-Japan Index -2.4%

This shouldn’t be a huge conceptual surprise given that the US Dollar is +0.9% YTD. Emerging Markets in particular do not like #StrongDollar. But those of you who embraced that reality into the USD’s 2013 highs (July) know what’s going on there too.

 

Can the US Dollar continue higher? With Janet Yellen being confirmed tonight, I doubt it. But my doubts are often wrong, so we’ll deal with whatever Mr. Macro Market decides on this front. Is there any other way to accept what’s really going on?

 

From a long-term @Hedgeye TAIL risk perspective, where the US Dollar Index is at is significant in that it’s a principal and directional driver for other massively interconnected global macro risks. Check out the last price of the following Big 3 Macro levels vs. our TAIL lines:

  1. US Dollar Index long-term TAIL line = $81.12
  2. Copper’s long-term TAIL line = $3.33/lb
  3. WTIC and Brent Oil long-term TAIL lines =  $98.26 and $108.89, respectively

While Dollar UP, Oil DOWN doesn’t yet have the correlation risk in our model that we’d jump up and down about (30 day and 180 day USD/Brent Oil correlations are +0.21 and -0.45, respectively), that doesn’t mean the Mr. Macro Market won’t change that.

 

On last week’s +0.5% move in the US Dollar Index:

  1. WTIC Oil was down -6.3%
  2. Brent Oil was down -4.7%
  3. Oil Volatility (VIX) was +30.9%! to 20.60

As I am sure Goodman would agree, volatility in an “asset class” that everyone and their brother is net long of breeds contempt. A breakout towards 30-40 Oil VIX would most certainly wake up consensus – because consensus is big time long of oil.

 

Looking at last week’s closing CFTC Futures/Options consensus positioning, here’s what I mean by that:

  1. BULLS: Crude Oil is the biggest net long position in Global Macro right now at +381,392 contracts
  2. BEARS: Japanese Yen is the biggest net short position in Global Macro at -143,384 contracts

In other words, if you are long Oil and the Nikkei on Down Yen expectations, join the club.

 

I don’t feel like we need to make a call for the sake of making a call right here and now on things like Oil and Yen. Going into last week we weren’t short Oil, so I missed that – but won’t miss shorting it on the bounce if it fails at TAIL resistance again. If Brent or WTI crude oil recapture TAIL supports, so be it.

 

That’s what’s going on in macro. The game is constantly changing. And it’s our job to change alongside it.

 

Our immediate-term TRADE Risk Ranges are now:

 

SPX 1
USD 80.52-81.12

Brent 106.99-109.40

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

What's Going On? - Chart of the Day

 

What's Going On? - Virtual Portfolio


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