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European Banking Monitor: Sberbank CDS Continued Wider

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 

 

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Key Takeaway:

Last week saw another wild ride as the market entered the week with rising concerns about the fallout of falling oil and a potential Russian collapse, but exited the week on a higher note in response to the Fed and ECB talking about delaying rate hikes and potentially purchasing assets, respectively. Most of the CDS gauges, on average, ended little changed on the week. 

 

Looking ahead, headwinds prevail. Rising concerns around credit quality fallout in oil-sensitive areas are coupled to ongoing pressure in yield spreads. Translation: rising revenue pressure in conjunction with growing provision expense.

 

European Financial CDS - Swaps mostly widened in Europe last week, but results were somewhat mixed.  15 institutions' CDS tightened while 21 widened. Russia's Sberbank CDS continued to widen, increasing by 16 bps.  Sberbank's risk profile is well into the red with CDS at 583 bps.  

 

European Banking Monitor: Sberbank CDS Continued Wider - chart1 financials cds

 

Sovereign CDS – Sovereign swaps mostly tightened over last week, particularly across Europe. The catalyst for tightening was the Fed signaling it would not raise rates in the near future, and the ECB signaling it is ready to pursue asset purchases.

 

European Banking Monitor: Sberbank CDS Continued Wider - chart2 sovereign CDS

 

European Banking Monitor: Sberbank CDS Continued Wider - chart3 sovereign cds

 

European Banking Monitor: Sberbank CDS Continued Wider - chart4 sovereign CDS

 

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 8 bps.

 

European Banking Monitor: Sberbank CDS Continued Wider - chart5 eruibor OIS spread

 

 

Matthew Hedrick 

Associate

 

Ben Ryan 

Analyst

 

 

 


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 COTTON, WHEAT, AND ORANGE JUICE markets experienced the most BULLISH relative positioning changes week-over-week
  • The SUGAR, LEAN HOGS, AND SILVER 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 SUGAR, CORN, AND NATURAL GAS markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, SILVER, AND COPPER 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 NATURAL GAS, BRENT CRUDE OIL, 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  

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


Keith's Macro Notebook 12/22: Yen | Russia | Sentiment

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS

Takeaway: Central banks stepped in last week to stanch the bleeding but fundamental headwinds are growing.

Current Ideas:

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 19

 

Key Takeaway:

Last week saw another wild ride as the market entered the week with rising concerns about the fallout of falling oil and a potential Russian collapse, but exited the week on a higher note in response to the Fed and ECB talking about delaying rate hikes and potentially purchasing assets, respectively. The XLF closed +2% on the week while most of the CDS gauges, on average, ended little changed on the week. 

 

Looking ahead, headwinds prevail. Rising concerns around credit quality fallout in oil-sensitive areas are coupled to ongoing pressure in yield spreads. Translation: rising revenue pressure in conjunction with growing provision expense.

 

 

Financial Risk Monitor Summary

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

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

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

  

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 15

 

1. U.S. Financial CDS -  Swaps tightened for 21 out of 27 domestic financial institutions as the stock market rose on news that the Federal Reserve would not raise interest rates in the near future. Of institutions whose CDS widened, Genworth Financial widened the most (+30 bps) on its announcement that it has not yet completed its annual review of long-term care insurance active life margins.

 

Tightened the most WoW: PRU, MTG, ACE

Widened the most WoW: GNW, MBI, AGO

Tightened the most WoW: MMC, ACE, CB

Widened the most MoM: GNW, AGO, GS

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 1

 

2. European Financial CDS - Swaps mostly widened in Europe last week, but results were somewhat mixed.  15 institutions' CDS tightened while 21 widened. Russia's Sberbank CDS continued to widen, increasing by 16 bps.  Sberbank's risk profile is well into the red with CDS at 583 bps.  

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 2

 

3. Asian Financial CDS mostly widened last week with Japan's Sumitomo Mitsui leading the group (+3 bps, +4.9%).  Chinese CDS showed the smallest moves, which contrasts danger signals shown elsewhere such as the interbank rate, which rose +48 bps, and the price of Chinese steel, which fell -1.6% during the week.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week, particularly across Europe. The catalyst for tightening was the Fed signaling it would not raise rates in the near future, and the ECB signaling it is ready to pursue asset purchases.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 18

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 3

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 18.5 bps last week, ending the week at 6.63% versus 6.82% the prior week.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 5.0 points last week, ending at 1848.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 6

 

7. TED Spread Monitor – The TED spread fell 0.8 basis points last week, ending the week at 21.7 bps this week versus last week’s print of 22.49 bps.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 7

 

8. CRB Commodity Price Index – The CRB index fell -2.7%, ending the week at 240 versus 247 the prior week. As compared with the prior month, commodity prices have decreased -10.4% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 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 8 bps.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 48 basis points last week, ending the week at 3.13% versus last week’s print of 2.65%. 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: GROWING HEADWINDS - 10

 

11. Chinese Steel – Steel prices in China fell 1.6% last week, or 47 yuan/ton, to 2832 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: GROWING HEADWINDS - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 152 bps, -2 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.0% upside to TRADE resistance and 1.1% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: GROWING HEADWINDS - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


Call Invite | Putting Companies Through a Linguistic Polygraph Test (Statement Analysis)

Takeaway: We're hosting a call tomorrow, December 23 at 11am EST with Mark McClish, creator of the Statement Analysis system.

Call Details:

Toll Free Number:

Toll Number:

Conference ID/Password: 13597957

Materials: CLICK HERE

 

“Statement Analysis is the most accurate way of determining if a person is lying in a verbal or written statement. A person cannot give a lengthy deceptive statement without revealing that it is a lie. This is because people's words will betray them.”

-Mark McClish, creator of the Statement Analysis method

 

HOW WE ARE USING STATEMENT ANALYSIS

Reading conference call/analyst meeting transcripts is a key part of the analyst’s job.    We all use words to define our reality, and our choice of words can be revealing.  The premise of Statement Analysis is that a person’s choice of specific words can reveal when there might be an attempt at deception.  This Statement Analysis exercise looks exclusively at a company’s written and verbal statements.  Using these hidden clues, we can dig deeper into a company’s public pronouncements for signals of potential concerns in a company’s reporting.

 

TIMING OF THE CALL

On December 23rd at 11am we will be hosting a conference call on Statement Analysis and how we apply it to our own financial analysis.  On the call will be Mark McClish, creator of the Statement Analysis system and a federal law enforcement official for the past 26 years. We will provide the names of the companies discussed on the day of the call.

 

MARK MCCLISH BIO

In 1990, Mark was promoted to the position of Inspector/Instructor at the U.S. Marshals Service Training Academy located at the Federal Law Enforcement Training Center in Glynco, GA. He taught at the Training Academy for nine years serving as the lead instructor on interviewing techniques. He used this time to study deceptive statements and conduct research on deception. Based on his findings, he created the Statement Analysis techniques for detecting deception in a verbal and written statement. While assigned to the Training Academy Mark was also the lead defensive tactics instructor for the Marshals Service.

 

Mark retired from the Marshals Service in 2009 and started Advanced Interviewing Concepts. His company provides interviewing skills training and assists investigators in analyzing statements.

 

WHAT WE INTEND TO ACCOMPLISH ON THE CALL

On the call we will focus on:

  • Why Statement Analysis is important.
  • Mark’s process and findings.
  • Provide analysis on select companies. 
  • Identify areas within specific corporate releases that bear closer scrutiny, and
  • Compare company comments with their financial statements.

 

The call will last about an hour including time for Q&A.

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Call Invite | Putting Companies Through a Linguistic Polygraph Test (Statement Analysis)

Takeaway: We're hosting a call tomorrow, December 23 at 11am EST with Mark McClish, creator of the Statement Analysis system.

Call Details:

Toll Free Number:

Toll Number:

Conference ID/Password: 13597957

Materials: CLICK HERE

 

“Statement Analysis is the most accurate way of determining if a person is lying in a verbal or written statement. A person cannot give a lengthy deceptive statement without revealing that it is a lie. This is because people's words will betray them.”

-Mark McClish, creator of the Statement Analysis method

 

HOW WE ARE USING STATEMENT ANALYSIS

Reading conference call/analyst meeting transcripts is a key part of the analyst’s job.    We all use words to define our reality, and our choice of words can be revealing.  The premise of Statement Analysis is that a person’s choice of specific words can reveal when there might be an attempt at deception.  This Statement Analysis exercise looks exclusively at a company’s written and verbal statements.  Using these hidden clues, we can dig deeper into a company’s public pronouncements for signals of potential concerns in a company’s reporting.

 

TIMING OF THE CALL

On December 23rd at 11am we will be hosting a conference call on Statement Analysis and how we apply it to our own financial analysis.  On the call will be Mark McClish, creator of the Statement Analysis system and a federal law enforcement official for the past 26 years. We will provide the names of the companies discussed on the day of the call.

 

MARK MCCLISH BIO

In 1990, Mark was promoted to the position of Inspector/Instructor at the U.S. Marshals Service Training Academy located at the Federal Law Enforcement Training Center in Glynco, GA. He taught at the Training Academy for nine years serving as the lead instructor on interviewing techniques. He used this time to study deceptive statements and conduct research on deception. Based on his findings, he created the Statement Analysis techniques for detecting deception in a verbal and written statement. While assigned to the Training Academy Mark was also the lead defensive tactics instructor for the Marshals Service.

 

Mark retired from the Marshals Service in 2009 and started Advanced Interviewing Concepts. His company provides interviewing skills training and assists investigators in analyzing statements.

 

WHAT WE INTEND TO ACCOMPLISH ON THE CALL

On the call we will focus on:

  • Why Statement Analysis is important.
  • Mark’s process and findings.
  • Provide analysis on select companies. 
  • Identify areas within specific corporate releases that bear closer scrutiny, and
  • Compare company comments with their financial statements.

 

The call will last about an hour including time for Q&A.

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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