TODAY’S S&P 500 SET-UP – January 22, 2014
As we look at today's setup for the S&P 500, the range is 29 points or 0.97% downside to 1826 and 0.61% upside to 1855.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.46 from 2.45
- VIX closed at 12.87 1 day percent change of 3.46%
MACRO DATA POINTS (Bloomberg Estimates):
- 7am: MBA Mortgage Applications, Jan. 17 (prior 11.9%)
- 7:45am/8:55am: ICSC/Redbook weekly sales
- 4:30pm: API weekly oil inventories
- House, Senate not in session
- FCC begins first major airwaves auction since 2008, selling licenses nationwide for frequencies suited for use by smartphones, tablets; Dish Network has pledged to bid at least $1.56b to ensure sale’s success
- 12:30pm: NASA teleconference on agency’s Earth science activities planned for 2014
WHAT TO WATCH:
- BlackBerry to sell most of Canadian real estate to raise cash
- ABB says profit reduced by $260m in power systems charges
- Discovery seeks sports rights with control of Eurosport
- Amazon said to seek content rights to start Internet TV service
- Floating notes debut in US as more cash chases fewer securities
- Banks seen taking on European debt amid lingering problems: NYT
- Gross heir-apparent El-Erian quits as Pimco fights redemptions
- Bitcoin no bargain for investors with 47% bearish in poll
- Nokia investors call for rewards as Microsoft proceeds loom
- Dow Jones said to dismiss CEO Fenwick amid slow demand for DJX
- BHP quarterly iron ore production narrowly misses forecast
- Bank of Japan sticks to record easing as inflation picks up
- China money rate drops as PBOC cash injections spur stocks gain
- World Economic Forum meeting in Davos coverage
- Abbott Laboratories (ABT) 7:44am, $0.58 - Preview
- Allegheny Technologies (ATI) 7am, $(0.21)
- Amphenol (APH) 8am, $0.98
- Brinker Intl (EAT) 7:45am, $0.58 - Preview
- Coach (COH) 7am, $1.11 - Preview
- Freeport-McMoRan (FCX) 8am, $0.80 - Preview
- General Dynamics (GD) 7am, $1.75 - Preview
- Motorola Solutions (MSI) 7am, $1.62
- Northern Trust (NTRS) 7:30am, $0.75 - Preview
- Parker Hannifin (PH) 7:30am, $1.25 - Preview
- St Jude Medical (STJ) 7:30am, $0.99 - Preview
- TE Connectivity (TEL) 6am, $0.77
- Textron (TXT) 6:30am, $0.59
- United Technologies (UTX) 6:59am, $1.53 - Preview
- US Bancorp (USB) 7am, $0.75 - Preview
- Norfolk Southern (NSC) 8am, $1.51 - Preview
- BancorpSouth (BXS) 4:01pm, $0.28
- Crown Castle Intl (CCI) 4:01pm, $0.16
- East West Bancorp (EWBC) 5:02pm, $0.55
- eBay (EBAY) 4:15pm, $0.80 - Preview
- Jacobs Engineering (JEC) 8:28pm, $0.74
- Netflix (NFLX) 4:05pm, $0.66 - Preview
- Noble (NE) 5pm, $0.81
- Polycom (PLCM) 4:05pm, $0.15
- PTC (PTC) 5:02pm, $0.44
- Raymond James Financial (RJF) 4:16pm, $0.73
- SanDisk (SNDK) 4:05pm, $1.57
- Stryker (SYK) 4pm, $1.22 - Preview
- Susquehanna Bancshares (SUSQ) 4:30pm, $0.21
- Teradyne (TER) 5:01pm, $0.04
- Umpqua Holdings (UMPQ) 4:05pm, $0.24
- United Rentals (URI) 4:15pm, $1.48
- Varian Medical Systems (VAR) 4:02pm, $0.91
- Western Digital (WDC) 4:15pm, $2.08
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Uranium Poised for Bull Market as Japan Reviews Reactors: Energy
- Nickel Seen Stalling by Morgan Stanley as Goldman Eyes Rally
- Whistle-Blower in Coal Rally Heralds Colombia Shift: Commodities
- WTI Crude Rises a Third Day on Forecast Distillate Supplies Fell
- Copper Declines on Speculation Chinese Holidays to Curb Demand
- Wheat Gains on Speculation Cold Temperatures May Hurt U.S. Crop
- Rubber Futures Drop to Five-Month Low on China Demand Concerns
- Abenomics Accelerates Gold Sales in Japan as Inflation Hedge
- Rebar Rebounds From 16-Week Low Amid Improved China Money Supply
- India Seen Failing to Meet Sugar Export Plans: Chart of the Day
- Australian Cattle Prices Extend Decline to Lowest Since 2009
- Coal India Faces $4 Billion Rent Claim for State’s Mine Land
- Gazprom, Statoil Gas May Replace Shell-Exxon Supplies in Europe
- Gold Target Cut by Morgan Stanley Seeing ‘More Pain to Come’
The Hedgeye Macro Team
THE MACAU METRO MONITOR, JANUARY 22, 2014
HOLIDAY ROOMS COST MORE THAN JAPAN, LAS VEGAS Macau Business Daily
Average hotel room prices in Macau are HK$4,000 or US$516 per night for this year’s Lunar New Year period – higher than a five-star hotel room rate in Japan over the same period. The average nightly five-star rate for Macau in 2013 was 1,732 patacas – 138% cheaper – according to the Macau Hotel Association.
Around 270 million Chinese people – about a fifth of the mainland population – are eligible under China’s Individual Visit Scheme to come to Macau. The city presently has only about 22,000 hotel rooms. The issue was even mentioned last week by Li Gang, the central government’s new chief representative in Macau. “There are currently about 22,000 hotel rooms in Macau only, but in Las Vegas they have six times the hotel rooms than we have to serve an annual visitor number of 36 million,” Li stated.
TAM AUTHORIZED TO EXTEND LOTTERY MONOPOLY Macau Business Daily
Sociedade de Lotarias Wing Hing Lda is likely to have its monopoly right to run a Chinese lottery in Macau extended until December 31, 2014. The city’s Official Gazette yesterday said that Chief Executive Fernando Chui Sai On had delegated Francis Tam Pak Yuen, Secretary for Economy and Finance, to grant the extension, and “amend the concession contract”.
Annual revenue for the lottery, known locally as Pa Ka Pio or Pacapio, has been around six million patacas (US$751,00) since 2007. The Official Gazette listed SJM Holdings’ directors Angela Leong On Kei and Louis Ng Chi Sing in June 2011 as directors of Wing Hing. Wing Hing pays the government 23% of its revenue, plus 5% to the Macao Foundation.
This note was originally published at 8am on January 08, 2014 for Hedgeye subscribers.
“For man to truly understand himself, he must travel beyond the clouds”
When I saw my first Space Shuttle launch as a child, I knew I wanted to be an astronaut.
After I made my first real money selling PayPal/eBay stock, I bought a ticket on Virgin Galactic to go to space aboard SpaceShipTwo. I later bought a second seat on Space Expedition Corporation’s Lynx. As I became more involved in the Newspace community I began speaking at conferences and universities around the world – the topic being “The Potential for & Impact of Commercial Space & Space Tourism”.
Today, alongside my research and engineering team @Hedgeye, I am co-founding Firefly – a ground-based, small satellite launch company, with one of Hedgeye’s greatest supporters and fans, PJ King, as well as propulsion engineer extraordinaire, Tom Markusic.
With a Ph.D. from Princeton in Mechanical & Aerospace Engineering, Tom has conducted research on deep space propulsion systems and since 2006 has held senior leadership positions inside virtually every leader in the Newspace Industry: Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin and Richard Branson’s Virgin Galactic. Tom is Firefly’s CEO and from what I have seen, he will be a fantastic entrepreneur and business executive.
Lowering the cost of small satellite launches to Low Earth and Sun Synchronous Orbits will revolutionize broadband data delivery and earth observation missions. What used to cost hundreds of millions of dollars, is rapidly becoming available in the single digit millions.
While the leaders in the nascent and rapidly developing small sat industry (companies such as PlanetIQ, Skybox, Planet Labs, and numerous others) have raised VC funds well in excess of $100M in the last 1-2 years, there exists virtually no dedicated launcher capacity for these ventures to deliver their payloads to orbit.
With Hedgeye’s help, Firefly will change this.
We have rapidly received our seed funding commitments and are already in discussions with investors looking towards our Series A funding. Since our website launched and word of mouth has spread through the industry, we have been overwhelmed with resumes. We have established our headquarters in Austin, TX and research and development operations in Hawthorne, CA.
What we are setting out to do will be enormously challenging. It is difficult to make exact projections about schedule until we get further along in development, but the team has set itself a goal: To be in orbit in about three years.
Hedgeye has and will continue to support Firefly on a number of fronts: Josh Steiner (today he runs our Financials vertical but in the past he analyzed satellite operators) has worked with us on market sizing.
Jay Van Sciver, who leads Hedgeye’s Industrials team, has worked on valuation analysis for some of the private New Space players. Hedgeye will lend assistance in a variety of operational areas, ranging from finance and accounting to HR, facilities and IT.
We are not in the business of complaining about the 2008 crisis. We are in the business of cutting edge research, intellectual growth, and product innovation. So, I just wanted to take a few minutes this morning to thank you for your business – it’s helping us travel beyond the clouds.
Alongside our TREND duration view (bullish or bearish in brackets), our immediate-term Risk Ranges are now:
SPX 1824-1850 (bullish)
VIX 11.85-13.75 (bearish)
Pound 1.63-1.65 (bullish)
Natural Gas 4.20-4.51 (bullish)
Brent Oil 105.25-109.39 (bearish)
Gold 1186-1245 (bearish)
Onward and upward,
President, Hedgeye Risk Management
Takeaway: We see real interest rate expectations dragging down the CLP another 10-15% vs. the USD from here amid unnecessarily easy monetary policy.
This note was originally published January 21, 2014 at 12:53 in Macro
- Specifically, our GIP Model puts the Chilean economy squarely into Quad #2 (i.e. Growth Accelerating as Inflation Accelerates) for at least the next 3-6 months. By the end of 2Q14, we see Chilean CPI threatening the upside of the central bank’s 3% (+/- 100bps) target aided by a supportive base effect (i.e. easy comps) and annualized currency weakness.
- Ironically, this comes at a time when Central Bank President Rodrigo Vergara is stepping up dovish commentary amid the existing monetary easing cycle (-50bps of cuts since OCT).
- With the advent of this commentary, Chilean swap rates are hitting multi-year lows; the current 4.08% rate on the 1Y tenor is the lowest price since DEC ’10. Relative to the benchmark monetary policy rate, it has declined -10bps WoW to -42bps – effectively implying ~two additional rate cuts over the NTM. Assuming that comes to fruition, such policy would make absolutely no sense in the context of our intermediate-term GIP outlook for Chile.
- Moreover, with the Fed at least appearing set to continue tapering the pace of its asset purchases over the intermediate term, we think the spread between CLP and USD monetary policy will continue to diverge in favor of the USD – threatening to push the USD/CLP spot rate to/through the ~625 level over the intermediate term.
- Lastly, 1Y currency forwards are pricing at the ~565 level, implying our view is not within the realm of consensus expectations.
One of the things our Macro Team likes to do is make strategic calls on currencies – especially when our expectations for the country’s intermediate-to-long-term GIP (i.e. growth/inflation/policy) fundamentals diverge from consensus expectations or those of that country’s policymakers.
We don’t care if it’s a liquid currency like the AUD or the JPY (down -20% and -26%, respectively, since we outlined our bearish biases on 7/27/11 and 9/27/12, respectively) or an illiquid currency like the ARS or the VEF (down -42% and -32%, respectively, since we outlined our bearish biases on 11/4/10 and 10/9/12, respectively).
The CLP probably falls into the latter category, so we’re guessing this is roughly the point in the note where most of you lose interest. We’ve been actively covering the country for over four years now (along with the rest of Latin America) and this is the first note we’ve ever published exclusively regarding Chile.
For those of you who are inclined to continue on, we think the CLP has 10-15% downside from here as unnecessarily easy monetary policy weighs on real interest rate expectations.
Specifically, our GIP Model puts the Chilean economy squarely into Quad #2 (i.e. Growth Accelerating as Inflation Accelerates) for at least the next 3-6 months. By the end of 2Q14, we see Chilean CPI threatening the upside of the central bank’s 3% (+/- 100bps) target aided by a supportive base effect (i.e. easy comps) and annualized currency weakness.
Ironically, this comes at a time when Central Bank President Rodrigo Vergara is stepping up dovish commentary amid the existing monetary easing cycle (-50bps of cuts since OCT):
“There is a probability that we have an expansive monetary policy going forward. We don’t think it will be massive, that a huge monetary stimulus is needed, but there is a probability that an additional monetary push will be required. Faster inflation in the past two months is transitory, with little sign of wage pressures or international energy and food costs pushing price-increases toward the top of the target range in the foreseeable future.”
It’s not exactly as if the Chilean central bank was leaning hawkish when it kept rates on hold last week, so we think Vergara’s commentary represents a step forward in dovish guidance:
“The Chilean economy has continued to lose strength. The board estimates that in the coming months it might be necessary to increase the monetary stimulus to ensure that projected inflation will stand at 3 percent in the policy horizon.”
With the advent of this commentary, Chilean swap rates are hitting multi-year lows; the current 4.08% rate on the 1Y tenor is the lowest price since DEC ’10. Relative to the benchmark monetary policy rate, it has declined -10bps WoW to -42bps – effectively implying ~two additional rate cuts over the NTM. Assuming that comes to fruition, such policy would make absolutely no sense in the context of our intermediate-term GIP outlook for Chile.
Keep in mind that our call for Chilean inflation to accelerate over the intermediate term is in line with our #InflationAccelerating Q1 Macro Theme:
“Across the globe, reported inflation readings are poised to accelerate from post-crisis lows as easy comps, a commodity base effect and accelerating wage pressures all come to a head in the first quarter of 2014. Moreover, the reemergence of inflation as a core macro risk threatens to materially alter the investment landscape going forward.”
Moreover, with the Fed at least appearing set to continue tapering the pace of its asset purchases over the intermediate term, we think the spread between CLP and USD monetary policy will continue to diverge in favor of the USD – threatening to push the USD/CLP spot rate to/through the ~625 level over the intermediate term.
Structurally speaking, the Chilean peso is a dog. Chile scores very poorly on Pillar I of our proprietary EM Crisis Risk Model (i.e. BoP/Currency Crisis Risk), which is designed to rank emerging market economies according to their level of risk by capturing deviations from the sample mean across key metrics. Some noteworthy lowlights for Chile:
- A bloated current account deficit of -3.4% (3Q13); and
- A structurally-impaired outlook for the current account with the busted bubble that is commodities accounting for 85.8% of exports (2012 annual data).
Lastly, 1Y currency forwards are pricing at the ~565 level, implying our view is not within the realm of consensus expectations. Recall that there are three main “states” for consensus to adopt with respect to contrarian investing:
- Bullish enough
- Bearish enough
- Not enough of either
Right now, we think consensus is a clear #3 with respect to the Chilean peso. Happy shorting,
Associate: Macro Team
What an incredible start to 2014 from the peripheral European equity markets!
- Portugal +8.8% ytd and +16.0% in 2013
- Ireland +6.9% ytd and +33.6% in 2013
- Greece +6.2% ytd and +28.1% in 2013
- Italy +5.8% ytd and +16.6% in 2013
- Spain +5.3% ytd and +21.4% in 2013
We believe the outperformance of the periphery is driven on continued accommodative ECB policy, and reflective of fiscal consolidation from sovereigns and an improved risk/exposure profile from the banking sector.
The macro team remains committed to our Q1 2014 macro investment theme of #GrowthDivergences in which we’ve outlined a favorable growth outlook for the Eurozone, driven by easier fundamental comparisons and given that the region’s recovery is lagging the U.S. by roughly two years. (click to review the Q1 2014 presentation and listen to the webcast).
As a continuation of our Q4 2013 Macro theme #EuroBulls we remain bullish on German equities (+25.5% in 2013) and UK equities (+14.4% in 2013), in particular, which we’ve expressed via the etfs EWG and EWU, respectively. We currently favor a slightly overweight allocation of European equities to U.S. equities.
As a further sign that risk is abating from Europe’s once most troubled peers, the spread on both the Spanish 10YR bond and Italian 10YR to German Bunds remains ground near/below the 200bp line -- where levels stood back when Greece received its first bailout. And just this morning the Portuguese 10YR dipped below 5.0%, the first time since August 2010!
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