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June 10, 2014

June 10, 2014 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

 

June 10, 2014 - Slide8

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Refreshed, China Property Market Monitor

Takeaway: To quote Hedgeye senior macro analyst and Asia wizard Darius Dale, “lots of red indeed.”

Click to enlarge image below.

Refreshed, China Property Market Monitor - q1

 

Copper Inventories

Inventories of copper and iron ore have moved in different directions. Chinese metal-for-credit schemes may be complicating the data. The expected copper supply growth in coming years appears significant, although prices have firmed since March, in part due to inventory trends.

 

Refreshed, China Property Market Monitor - q2

 

Iron Ore Inventories

Seaborne iron ore prices continue to decline, reaching the lowest levels since 3Q 2012.

 

Refreshed, China Property Market Monitor - q3

 

Chinese Construction Materials

Nominal China Rebar prices have hit a 5-year low, which is likely not a positive sign for construction activity.  

 

Refreshed, China Property Market Monitor - q4


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 10, 2014


As we look at today's setup for the S&P 500, the range is 26 points or 1.09% downside to 1930 and 0.24% upside to 1956.                                                       

                                                                        

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: 2.20 from 2.18
  • VIX closed at 11.15 1 day percent change of 3.91%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Business Optimism, May, est. 95.8 (prior 95.2)
  • 7:45am: ICSC weekly sales
  • 8:55am: Redbook weekly sales
  • 10am: JOLTs Job Openings, April, est. 4.05m (prior 4.014m)
  • 10am: Wholesale Inventories, April, est. 0.5% (prior 1.1%)
  • Wholesale Trade Sales, April, est. 0.9% (prior 1.4%)
  • 4:30pm: API weekly oil inventories

 

GOVERNMENT:

    • Primaries held in Va., Nev., Maine, S.C.
    • President Obama hosts Tumblr Q&A on college affordability
    • 8:45am: House Approps. energy, water spending bill markup
    • 9:30am: House Appropriations Cmte marks up defense spending bill
    • 10am: Senate Armed Services Cmte gets briefing on prisoner exchange for Army Sgt Bowe Bergdahl
    • 10am: World Bank issues Global Economic Prospects report
    • 10:30am: Senate Banking Cmte receives semi-annual report on CFPB from Director Richard Cordray
    • 10:30am: PCAOB  open meeting to consider auditing standard
    • 1:25pm: Vice President Joe Biden delivers keynote remarks at the National Association of Manufacturing 2014 summi

 

WHAT TO WATCH:

  • ICE says Euronext IPO values exchange at up to $2.4b
  • PPL to spin off some U.S. power plants into new firm w/fund
  • Merkley urges Fed to restrict bank ownership of commodities
  • High-speed trading to be examined by Levin at hearing next wk
  • Apollo Global said to raise $1.5b CLO fund with JPMorgan
  • Time Warner said to be in talks for stake in Vice Media
  • GM faces punitive damages over switch defect, lawyers warned
  • Berkshire to expand energy wager as far as ’eye can see’
  • China inflation quickens to fastest pace since Jan. on food
  • U.K. industrial output posts biggest annual increase since ’11
  • LG Display said in talks to supply OLED TV panels to Panasonic
  • Sony says PS4 users will get early look at Destiny video game
  • China auto sales climb 13% as Ford surges, Great Wall slumps
  • Hillary Clinton’s book, “Hard Choices,” released
  • CFPB delivers semi-annual report to Senate Banking Cmte
  • MSCI index classification review announced ~5pm

 

EARNINGS:

    • Burlington Stores (BURL) 6:12am, $0.22
    • Francesca’s Holdings (FRAN) 7:30am, $0.22
    • HD Supply Holdings (HDS) 6am, $0.17
    • NCI Building Systems (NCS) 4:01pm, ($0.03)
    • Oxford Industries (OXM) 4pm, $0.87
    • RadioShack (RSH) 7am, ($0.51)
    • Science Applications Int’l (SAIC) 4:05pm, $0.67
    • Ulta Salon Cosmetics (ULTA) 4pm, $0.74
    • United Natural Foods (UNFI) 4:05pm, $0.73

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Palladium Reaches 3-Year High as South Africa Strike Talks Fail
  • Brent Oil Premium to WTI Narrows to Two-Month Low on Inventories
  • Soy Farmers See Rally Ending on Record U.S. Harvest: Commodities
  • Copper Falls Amid Concern Banks Might Further Restrict Financing
  • Wheat Rebounds on Speculation Slump May Spur Demand; Corn Drops
  • Rubber Climbs by Most in 3 Weeks as Thailand May Support Prices
  • China’s Commodity Financing Seen Unwinding by Goldman Amid Probe
  • Platinum Jobs Threat Seen Rising by Minister as Strike Persists
  • Coffee Harvest in Vietnam Set to Drop From Record as Yields Fall
  • Port Hedland Engineers Join Tugboat Workers in Approving Strikes
  • China’s Clean-Fuel Focus Tests U.S. Coal-Export Lifeline: Energy
  • USDA’s Glauber Says China Grain Trade Disruption Seen Temporary
  • LNG Imports Drop 45%, Risking Future Utility Returns: Bear Case
  • Some Chinese Banks Said to Limit Credit for Iron Ore Financing

 

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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IGT BLACK BOOK CALL TOMORROW: THE CASE FOR GOING PRIVATE

IGT BLACK BOOK CALL TOMORROW: THE CASE FOR GOING PRIVATE - IGT COVER

 

Please join the Hedgeye Gaming, Lodging, and Leisure Team led by Sector Head Todd Jordan for a Black Book call on International Game Technology (IGT) - the case for going private. This insightful call is scheduled for tomorrow, Tuesday, June 10th at 1:00pm EDT.   

 

We are fast tracking this call due to this afternoon's news headline relating to IGT retaining a financial advisor to explore strategic alternatives.  A call had previously been planned for later this week to discuss Hedgeye's long term investment thesis on IGT.

 

Todd Jordan previously served as Audit Chair on the Shuffle Master Board of Directors.  As such he was licensed in many jurisdictions and is able to provide invaluable insight into any go private transactions.

 

CALL DETAILS

Attendance on this call is limited. Please contact for the dial in information and presentation slides. 


Poll of the Day Recap: 56% Are Concerned About The 'Crash' in Volatility

Takeaway: 56% said YES; 44% said NO.

As Hedgeye CEO Keith McCullough observed in today’s Morning Newsletter, the VIX officially crashed last week, down -5.7% to -21.6% YTD. “If you want to fail really, really, fast in this business,” McCullough wrote, “get your clients levered-long the US stock market at 10 VIX (US Equity Volatility Index).”

 

We asked: Are you concerned about the ‘crash’ in volatility? Here’s what you thought.

 

Poll of the Day Recap: 56% Are Concerned About The 'Crash' in Volatility  - concerned 

 

At the time of this post, 56% said YES; 44% said NO.

 

A voter who is concerned about the ‘crash’ in volatility answered YES because:

  • My timeframe is intermediate to longer term. The way I read it, extreme low levels on the VIX are, at a minimum, bearish intermediate term. Extreme highs are bullish same timeframe. Margin debt, Investors Intelligence bullish %, Speculation in penny stocks, and the length of time without a moderate correction of 8 - 10% only add to that concern.

 

Conversely, voters who voted NO had this to say:

  • "concerned" implies something has gone wrong. volatility is increasingly... well..,. volatile and has become an independent factor in the marketplace.  if it "crashed," it will be back
  • Who's buying? HM's PM's - as long as they are, little else matters except a news catalyst. Therein lies the rub. Low volume and you could knock this market over with a feather.

 


MCD: Time For A Change

Every month we read the MCD press release on monthly sales trends expecting to see something more.  Typically, the opening comments from CEO Don Thompson consist of a few feel good statements that do little to convince us that the company is effectively addressing its issues.

 

This month, the opening statement is no different: “Around the world we are pursuing opportunities to provide our customers with their favorite food and drink, create memorable experiences, offer unparalleled convenience and become an even more trusted brand,” said McDonald’s President and Chief Executive Officer Don Thompson.  “We are intensifying our commitment to place the customer at the center of everything we do and are determined to create experiences that deliver the most meaningful impact for our customers and our business.”

 

Given the 1% decline in same-store sales this month in the U.S. and a seventh straight monthly decline, the company is trending to levels not seen since 2002 (see chart below).  The company also failed to drive positive traffic in this region, despite focusing the marketing calendar on its value message.  This reinforces what CEO Don Thompson said at a conference last month, inasmuch as “MCD is all about increasing top line sales and transactions, and not based on optimizing profitability.”  While the current trend isn’t nearly as bad globally, we believe the company still faces a significant uphill battle.

 

The stock has gained 6.2% over the last three months with the hope that the company would use its balance sheet to create shareholder value.  Management did announce a shareholder friendly move, but this is old news.  We believe the street will now turn its focus back to current business trends and the underlying issues that remain.

 

Industry conditions are difficult for a number of companies, but there are others that are thriving in this environment.  MCD’s core customers are in the lower-to-middle class cohort, which continues to feel the effects of limited income growth and a benign job environment.

 

While MCD has the marketing muscle and cash flow to muddle along for a few years, it will be constantly fighting an uphill battle against macro trends and the consumers’ shift away from traditional fast food.  In the end, we believe MCD will face a major restructuring to once again take share in the global QSR market.

 

MCD: Time For A Change - 111

 

MCD: Time For A Change - 222

 

MCD: Time For A Change - 333

 

MCD: Time For A Change - 444

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


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