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Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    

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1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

 

  • The ORANGE JUICE, COTTON, AND WHEAT markets experienced the most BULLISH relative positioning changes week-over-week
  • The SUGAR, SOYBEANS, AND HEATING OIL markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 Sentiment

 

 

2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The CORN, SUGAR, ORANGE JUICE markets are positioned for HIGHER PRICES near-term
  • The WHEAT, LEAN HOGS, COCOA markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis

 

3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The BRENT, CORN, AND SUGAR markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

*NOTE* Despite the sell-off in crude oil since the middle of the summer, the futures curve has become much steeper. Jan. 2016 BRENT contracts have widened relative to spot prices. The spot price-1yr differential has widened from around $1.00 at the beginning of October to over $5.00 currently ($5.23 currently). BRENT spot-1Yr. basis differential is the widest of any commodities in the CRB Commodities Index (Jan 2016 contracts are trading nearly +12% higher than Jan 2015 contracts (current spot). Despite the downward pressure on spot prices, the contango in the current curve will provide support to the upside on the expiry roll if the general shape remains the same.    

 

Commodities Weekly Sentiment Tracker - chart3 spot 1Yr basis

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.

 

Commodities Weekly Sentiment Tracker - chart4 open interest         

 

Ben Ryan

Analyst


Monday Mashup: MCD, KKD and More

Monday Mashup: MCD, KKD and More - 1

 

Recent Notes

12/01/14 Monday Mashup: YUM, BLMN and More

12/02/14 Long YUM Call Today @10AM

12/03/14 BOBE: The Clock Is Ticking

 

Events This Week

Monday, December 8th

  • MCD November 2014 Sales and Revenue Release

Tuesday, December 9th

  • KKD earnings call 4:30pm EST

Wednesday, December 10th

  • Bernstein Consumer Summit: NDLS, DENN
  • MCD Oak Brook Investor Meeting

Thursday, December 11th

  • YUM Investor & Analyst Conference

 

Chart of the Day

MCD reported a -2.2% decline in global same-store sales for the month of November, missing estimates of -1.9%.  We'll have more out on this later today.

 

Monday Mashup: MCD, KKD and More - 2

 

Recent News Flow

Monday, December 1st

  • RRGB announced it is two weeks away from opening its first restaurant in Louisiana (Baton Rouge).

Tuesday, December 2nd

  • DFRG upgraded to outperform at Raymond James.
  • TXRH downgraded to outperform from strong buy at Raymond James.
  • CAKE announced the return of its seasonal Peppermint Bark Cheesecake, a festive favorite, in restaurants worldwide.

Wednesday, December 3rd

  • BOBE downgraded to underweight at KeyBanc with a $45 PT.

Thursday, December 4th

  • JMBA provided an update on several initiatives undertaken to drive growth and shareholder value including: its continual move to an asset-light model (targeting 80% franchise-to-company-owned model by the end of 2015), annual cost savings of $30 million and ample share repurchases.  Management also indicated that same-store sales for the first four weeks of 4Q14 are running in the mid single-digit range.
  • SBUX detailed its five-year plan at its biennial investor conference in Seattle.  Among the key topics touched upon were: coffee and tea leadership, daypart and store format diversification, mobile commerce momentum and innovation (including mobile order & pay), global and channel expansion, and financial operating performance.
  • BKW announced its application to acquire THI was approved by the Canadian government.  

Friday, December 5th

  • LOCO announced the opening of its newest restaurant located at 40520 Winchester Road in Temecula, CA.  The 3,800 sq. ft. restaurant was relocated from 27375 Jefferson Ave.
  • DFRG was ranked #3 by The Dallas Morning News in its Top 100 Places to Work list (mid-size companies).  This is the second consecutive year DFRG was included on the list.
  • CBRL announced its Board of Directors declared a regular quarterly dividend of $1.00 per share.
  • COSI reported comps for the five weeks ended December 1st of +3.7% and +0.6% at company-owned and franchise restaurants, respectively.

 

Sector Performance

The SPX (+0.4%) outperformed the XLY (-0.4%) last week, as both casual dining and quick service stocks, in aggregate, outperformed the XLY.

 

Monday Mashup: MCD, KKD and More - 3

 

Monday Mashup: MCD, KKD and More - 4

 

XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.

 

Monday Mashup: MCD, KKD and More - 5

 

Casual Dining Restaurants

Monday Mashup: MCD, KKD and More - 6

Monday Mashup: MCD, KKD and More - 7

 

Quick Service Restaurants

Monday Mashup: MCD, KKD and More - 8

Monday Mashup: MCD, KKD and More - 9

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


THE HEDGEYE MACRO PLAYBOOK

Takeaway: In today's edition of the Macro Playbook, we reiterate our negative bias on Emerging Market asset class beta.

INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Consumer Staples Select Sector SPDR Fund (XLP)
  5. Health Care Select Sector SPDR Fund (XLV)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

 

QUANT SIGNALS & RESEARCH CONTEXT

#EmergingOutflows Continues: Emerging markets continue to suck wind in Q4, in line with our #Quad4 theme. After making the switch from being broadly positive on EM asset class beta to adopting a broadly negative bias in late September, we continue to stress the merits of global capital allocators being underweight EM capital and currency market risk.

 

THE HEDGEYE MACRO PLAYBOOK - MSCI EM INDEX

 

THE HEDGEYE MACRO PLAYBOOK - JPM EM FX INDEX

 

Since our 9/23 note titled, “EMERGING MARKETS: THE EM RELIEF RALLY IS LIKELY OVER”, the iShares MSCI Emerging Markets ETF (EEM) is down -3.9%, the WisdomTree Emerging Currency Fund (CEW) is down -5.2%, the iShares JPM EM USD Bond ETF (EMB) is down -1.1% and the Market Vectors EM Local Currency Bond ETF (EMLC) is down -5.8%. To put this performance in perspective, the EEM ETF was up +6.7% over the course of our bullish bias, which began in late March and the VWO (EEM less South Korea) was up +9%.

 

THE HEDGEYE MACRO PLAYBOOK - ETF Divergence Monitor

 

At the regional level, emerging Europe equities (GUR) are down -10.7% and emerging LatAm equities (GML) are down -12.5%, while emerging Asian equities (GMF) are up a paltry +1% since 9/23. The former returns are perpetuated by Russia (RSX) and Brazil (EWZ) crashing, down -14.9% and -20.7%, respectively, while the latter return is buoyed by gains in China (FXI up +7.4%; CHIX up +18.6%) and India (EPI up +4.2%).

 

Looking to our Tactical Asset Class Rotation Model (TACRM), we continue to see signals that suggest investors remain under pressure to rotate out of emerging markets, at the margins. A the primary asset class level, TACRM is still generating a “DECREASE EXPOSURE” signal for both EM Equities and Foreign Exchange; those signals have been intact since the weeks ended 10/3 and 9/5, respectively. Their Passive Trend Follower Asset Allocations of 13% and 2% are off -39% and -20% from their respective trailing 3M averages.

 

At the secondary asset class level, 9 of the bottom 16 Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) readings are explicit emerging market exposures: EM corporate debt (EMCB), Malaysia (EWM), Mexico (EWW), Asian local currency debt (ALD), EM local currency debt (EMLC), EM FX (CEW), Colombia (ICOL), EM USD debt (EMB) and Russia (RSX). Recall that TACRM’s VAMDMI metric adjusts for both volume and volatility, which strengthens the predictive value of the momentum signal (vs. a single-factor model like a SMA or EMA).

 

THE HEDGEYE MACRO PLAYBOOK - TACRM 20 20

 

All told, lacking a clear catalyst to get positive, we continue to see further downside for EM asset class beta. Stay tuned for a more detailed presentation on emerging markets heading into 2015 after a year of demonstrable underperformance in 2014; the MSCI EM Index is down -1.7% YTD, underperforming the S&P 500 by 1400bps!

 

***CLICK HERE to download the full TACRM presentation.***

 

TRACKING OUR ACTIVE MACRO THEMES

#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.

 

Early Look: Party Hard? (12/8)

 

#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.

 

Draghi Didn’t Deliver the “Drugs”! (12/4)

 

#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.

 

#Bubbles: S&P500 Levels, Refreshed (11/18)

 

Best of luck out there,

 

DD

 

Darius Dale

Associate: Macro Team

 

About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.


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Hedgeye's Morning Macro Call with CEO Keith McCullough 12/8

CEO Keith McCullough takes a look at global markets and the economy and explains why he remains concerned.

***This is a complimentary peek behind-the-macro-scenes of our daily Morning Macro Call for institutional subscribers.***


MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE

Takeaway: Russia remains front and center on our global risk management focus list this morning.

Current Ideas:

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 19.2

 

Key Takeaway:

From a risk management standpoint, we remain very focused on the rising risk of a Russian banking crisis. In a nutshell, Western sanctions are driving capital out of the country causing the Ruble to weaken. Falling oil prices are compounding the problem. The CEO of Sberbank, Russia's largest bank with 46% deposit share, said back on November 14th that if the Russian economy were to decline by more than 1.2% in 2015 Sberbank would need the State to bail it out. Sberbank's CDS tacked on another 97 bps over the week, rising to 503 bps this week.

 

Russia's GDP was most recently growing at 0.7% Q/Q annualized. Energy contributes between 20-25% of GDP and oil prices are down by ~30%. This implies a drag on GDP of -6-8% as we roll into 2015. In other words, if sanctions aren't removed and oil prices don't bounce, the Ruble should continue to lose value and Russia will need to bail out its banking system at a time when it's already hemorrhaging cash ($100bn/year) from falling oil prices. That makes for a nasty mix with US equities at/near all time highs. 

 

Financial Risk Monitor Summary

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

 • Intermediate-term(WoW): Positive / 6 of 12 improved / 4 out of 12 worsened / 2 of 12 unchanged

 • Long-term(WoW): Negative / 2 of 12 improved / 3 out of 12 worsened / 7 of 12 unchanged

 

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 15.3

 

1. U.S. Financial CDS -  Swaps widened for 13 out of 27 domestic financial institutions.  Genworth Financial widened the most, continuing to exhibit volatility after the company's early November announcement that a review of its claims reserves and goodwill would result in a combined charge of over a billion dollars pre-tax.  Travelers tightened the most.

 

Tightened the most WoW: TRV, ACE, AGO

Widened the most WoW: GNW, C, MMC

Tightened the most WoW: MMC, CB, ACE

Widened the most/ tightened the least MoM: AON, XL, GS

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 1

 

2. European Financial CDS - Swaps mostly tightened in Europe last week with an average -4.7% move.  There were a few extreme movers in the region.  Russia continued to show extreme widening WoW: +97 bps, +23.9%.  Sberbank's CDS at 503 bps flag reflects the rising risk in the Russian economy.  Portugal's Banco Espirito Santo tightened to most last week (-88 bps, -17.8%) as Portuguese authorities near a sale of a few of the collapsed bank's parts.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 2

 

3. Asian Financial CDS mostly widened last week with a median 2.9% move.  Significant tightening in India skewed the average move down to -0.4%. 

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 17

 

4. Sovereign CDS – European Sovereign Swaps mostly tightened over last week. Italian sovereign swaps tightened by -10.7% (-14 bps to 115 ) and American sovereign swaps widened by 10.3% (2 bps to 18).  American CDS displayed a divergence from the stock market's (S&P 500) flat performance for the week.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 18

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 3

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 19.3 bps last week, ending the week at 6.33% versus 6.14% the prior week.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 10.0 points last week, ending at 1872.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 6

 

7. TED Spread Monitor – The TED spread rose 0.2 basis points last week, ending the week at 22.3 bps this week versus last week’s print of 22.06 bps.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 7

 

8. CRB Commodity Price Index – The CRB index fell -5.4%, ending the week at 252 versus 267 the prior week. As compared with the prior month, commodity prices have decreased -6.2% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 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 tightened by 0 bps to 8 bps.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 2 basis points last week, ending the week at 2.632% versus last week’s print of 2.608%. 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: FROM RUSSIA WITH LOVE - 10

 

11. Chinese Steel – Steel prices in China fell 1.1% last week, or 33 yuan/ton, to 2915 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: FROM RUSSIA WITH LOVE - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 166 bps, -3 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 13 2

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.3% upside to TRADE resistance and 3.3% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: FROM RUSSIA WITH LOVE - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis

Takeaway: KSS 10Q shows bifurcation store vs e-comm comp. Online shopping patterns suggests that retailers define peak periods by promotional cadence.

EVENTS TO WATCH

Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart2

 

 

COMPANY HIGHLIGHTS

 

KSS - 10Q: e-Commerce

Takeaway: KSS released its 10Q on Friday. The most notable takeaway is 31.6% growth in the online channel. Despite the big jump we still saw a sequential deceleration on the 2yr because of the replatform during 2Q13.  Specifically, when we look at the quarterly comp composition (chart 2), we see that after backing out the e-commerce growth, it implies that the store comp was -4%, matching new lows. Juicy and Izod aren't really having the desired effect for the bulls. KSS remains our top short.

 

 Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart1

 

Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart3

 

Black Friday Weekend Online Shopping

(http://www.sli-systems.com/resources/press-releases/cyber-monday-1000-pm-est-revealed-peak-online-holiday-shopping-hour)

 

Takeaway: There's nothing investable about this chart, but we find the content to be fascinating. This shows the hourly trend in shopping online over the Black Friday weekend. Three takeaways…

  1. The holiday shopping season appears to being in earnest online at about 8pm on Thanksgiving night.
  2. The notion that Cyber-Monday is being 'pulled forward' to Black Friday does not appear to be true.  Yes, there is a step-up from Thanksgiving Day levels, but still nowhere compared to the spike we saw on Monday.
  3. Notice the huge drop-off from Cyber-Monday to Tuesday.  Is that because people all of a sudden don't want to shop? Absolutely not. That's when the online promotional spigot all but shuts down -- at least relative to what had been in place the preceding four days. This is the 'tail wagging the dog', in that consumers will shop when the promotions are there. When the deals go away, so do shoppers.

 Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart4

 

OTHER NEWS

 

DLIA - Teen Clothing Retailer Delia’s Files for Bankruptcy

(http://www.bloomberg.com/news/2014-12-08/teen-clothing-retailer-delia-s-files-for-bankruptcy.html)

 

BEBE - Bebe confirms data breach hit U.S. retail stores

(http://fortune.com/2014/12/05/bebe-data-breach/)

 

AMZN - Instacart Is Raising North Of $100 Million At A $2 Billion Valuation

(http://techcrunch.com/2014/12/05/instacart-2b-kleiner/)

 

Black Friday’s momentum sees slowdown with Canadian shoppers

(http://globalnews.ca/news/1710620/black-fridays-momentum-sees-slowdown-with-canadian-shoppers/?hootPostID=08fdc89710f27837f0f01230f0362993)

Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart5

 

AMZN - Amazon Gets $5 Million From N.Y. to Bring 500 Jobs to Manhattan

(http://www.wwd.com/retail-news/direct-internet-catalogue/amazon-gets-5-million-from-ny-to-bring-500-jobs-to-manhattan-8060133?module=hp-wirestories)

 

Nintendo Heads for Best Holiday in Years as Profit Seen Triplin

(http://www.bloomberg.com/news/2014-12-07/nintendo-heads-for-best-holiday-in-years-as-profit-seen-tripling.html

 

FIVE - Five Below names COO and retail veteran Joel Anderson as CEO

(http://www.chainstoreage.com/article/five-below-names-coo-and-retail-veteran-joel-anderson-ceo)

 

 

 


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