• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Takeaway: While the factors in the risk monitor are signaling generally benign conditions, the VIX at 11 is enough to make us uncomfortable.

Current Best Ideas:

MONDAY MORNING RISK MONITOR: COMPLACENCY - 19

 

Key Callouts:

Last week saw two major macro events drive a rally across the global Financials complex. The ECB's rate decision and the US jobs report were both big positive catalysts for the group. The 2-10 spread finally showed some signs of life, widening 9 bps to 219 bps. We saw no other indications of rising risk measures in any of the other data we track on a weekly basis.

That said, it's important not to get too comfortable in this bull market. As our macro team has pointed out, the VIX at 11 marks a new post-crisis low and that, historically, has been a bearish setup. 


Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 5 of 12 improved / 0 out of 12 worsened / 7 of 12 unchanged

 • Intermediate-term(WoW): Positive / 5 of 12 improved / 3 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Negative / 3 of 12 improved / 3 out of 12 worsened / 6 of 12 unchanged

MONDAY MORNING RISK MONITOR: COMPLACENCY - 15

1. U.S. Financial CDS -  Largely in response to Friday's jobs report, swaps tightened for 27 out of 27 domestic financial institutions. The mean and median declines were -8 and -6 bps, respectively. The improvement was across the board as the large cap US banks tightened by 8 bps on average, while the specialty finance names were tighter by 12 bps.

Tightened the most WoW: GS, MS, JPM

Tightened the least WoW: MMC, UNM, ACE

Tightened the most WoW: GS, MS, C

Tightened the least MoM: WFC, AON, UNM

MONDAY MORNING RISK MONITOR: COMPLACENCY - 1

2. European Financial CDS - European bank swaps tightened aggressively last week on the heels of the ECB's decision to crank additional stimulus in the Eurozone. The average move was -17 bps (median -10 bps) and was led (again) by Greek banks, which dropped by an average of 82 bps w/w.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 2

3. Asian Financial CDS - Asian Financial swaps tightened across the board last week as well. Chinese banks swaps were lower by an average of 7 bps, while Indian banks were tighter by 3 bps.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 17

4. Sovereign CDS – Sovereign swaps tightened around the globe last week. Italy, Portugal and Spain all compressed by 17-21 bps. The US and Germany were both tighter by one basis point to 16 and 20 bps, respectively. 

MONDAY MORNING RISK MONITOR: COMPLACENCY - 18

MONDAY MORNING RISK MONITOR: COMPLACENCY - 3

MONDAY MORNING RISK MONITOR: COMPLACENCY - 4

5. High Yield (YTM) Monitor – High Yield rates fell 3.1 bps last week, ending the week at 5.41% versus 5.44% the prior week.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 5

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3 points last week, ending at 1,875.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 6

7. TED Spread Monitor – The TED spread rose 0.3 basis points last week, ending the week at 19.7 bps this week versus last week’s print of 19.4 bps.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 7

8. CRB Commodity Price Index – The CRB index fell -0.2%, ending the week at 305 versus 306 the prior week. As compared with the prior month, commodity prices have decreased -0.3% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 8

9. Euribor-OIS Spread – 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. The Euribor-OIS spread was unchanged at 20 bps w/w.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 9

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 1 basis points last week, ending the week at 2.58% versus last week’s print of 2.57%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 10

11. Chinese Steel – Steel prices in China fell 0.7% last week, or 23 yuan/ton, to 3,210 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 12

12. 2-10 Spread – Last week the 2-10 spread widened to 219 bps, 9 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 13

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.4% upside to TRADE resistance and 1.7% downside to TRADE support.

MONDAY MORNING RISK MONITOR: COMPLACENCY - 14

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT