Keith's Macro Notebook 2/9: FX | Europe | UST 10YR


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

Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS

Takeaway: US & China Footwear & Apparel e-Commerce demographics. Tesco turns to suppliers for help. TGT Canada liquidation getting tricky.


Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS - 2 9 chart2




CHINA vs. US: Footwear & Apparel e-Commerce Breakdown


This is a topic we've hit pretty hard over the past few months in our recent Black Books looking at the space. We did our own consumer survey on the topic, and while our results were in line with the info pertaining to the United States, here is an interesting look at the differences in demographic spending patterns in the US and China on footwear and apparel. For context, the online US footwear and apparel business was a $37bil industry in 2013 (10% penetration) and China grew at a 178% CAGR over the past 5 years to $33bil (11% penetration). A few of our takeaways...

  1. Income - The Chinese market is dominated by the top tier of the demographic group due in part to the simple fact that there is a divide in internet access between income groups. The US on the other hand is much more consistent. Though the bulk of the volume and $$$ can be attributed to the upper tiers of the income skew in the US -- shoppers across the spectrum have adopted the internet as an option, though not with the same frequency as the Chinese.
  2. Age - Here the two nations' skew across age demographics is the inverse of the income charts we hit on earlier. The Chinese consumer has more or less accepted the internet as a channel across age groups with a slight bias towards the younger generation. But, in the US there is a serious discrepancy between the 15-24 age bracket and the rest of the population. That's the demo we called out in our FL Black Book in January as the group that really matters in the e-comm discussion as it accounts for nearly all of the volatility. As the younger generation moves online we think that accrues to the brands not the retailers…a negative event especially for HIBB and FL.
  3. Women - Our comment here is focused specifically on the US market where 25% of men say they never shop for Apparel and Footwear online compared to just 15% of women. That's a big deal in the athletic industry where NKE, UA, FL, etc. are making a big push to build their respective Women's businesses. As with Footwear, we think that the upside accrues directly to NKE and UA rather than FL which has tried and failed for years to right the Lady Foot Locker ship. 


Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS - 2 9 chart1



Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS - 2 9 chart3

Source: Euromonitor


TSCO - Tesco tells suppliers to cut prices as commodities slump



Takeaway: When this flashed across our radar this morning it smelled a lot like TGT-Canada's plea for concessions from its suppliers in late July. While it's not unusual for a retailer to ask for vendor support, this, like the TGT ask, looks to be coming from a position of weakness rather than strength.


TGT - Target sale fail? Disappointed shoppers can expect deeper discounts ahead



Takeaway: This is where the Canada closure starts to get tricky. The US parent has severed ties with the red headed step child in the Great White North, but how will the company's relationships in the US be affected because of this? After years of promises from TGT and doubtless concessions by the suppliers we've got to believe that things are a little bit testy. It's no wonder that TGT Canada is treading lightly on thin ice when it comes to its liquidation sales. This is just one example, but telling of TGT's precarious spot. iPad's are discounted just 5% - if that goes higher we could see AAPL take it out on the US business when it plans its next round of allocations.





JCP - J.C. Penney partners with InStyle on new in-store salon concept



OVS Heads for IPO



Sweaty Betty Receives Catterton Investment



WBA - Walgreens introducing new beauty brand



BWS - Ex-Victoria's Secret CEO joins Brown Shoe board



WFM - Whole Foods, Instacart partner on same-day floral delivery



Guggenheim and Affiliates Invest $135M in BCBG



SPLS - Staples launches new omnichannel small business campaign Feb. 8


Monday Mashup: CAKE, PNRA and More

Monday Mashup: CAKE, PNRA and More - 1


Recent Notes

02/02/15 Monday Mashup: WEN, CMG, DNKN, YUM, BWLD

02/03/15 WEN: Middling Q, But that’s Not the Story Here

02/03/15 WEN Leveraged Recap Puts Pressure on Yum

02/04/15 CMG: Look Past the Near Term Noise

02/05/15 YUM: In Need of a Nudge

02/06/15 January Sales & Traffic Strongest in Six Years


Events This Week

Monday, February 9th

  • MCD January 2015 Sales and Revenue Release

Tuesday, February 10th

  • GTIM earnings call 11:00am EST

Wednesday, February 11th

  • CAKE earnings call 5:00pm EST

Thursday, February 12th

  • PNRA earnings call 8:30am EST

Friday, February 13th

  • RRGB earnings call 10:00am EST
  • JACK Annual General Meeting


Chart of the Day

Monday Mashup: CAKE, PNRA and More - 2


Recent News Flow

This Morning

  • BWLD was downgraded to hold at Miller Tabak with a $193 PT.

Monday, February 2nd

  • LOCO announced the addition of Baja Shrimp as a seasonal menu option available through the spring.  The new menu items include: Shrimp Mango Tacos, Shrimp Verde Enchiladas, Shrimp & Chicken Avocado Bowl, and Avocado Shrimp Salad.
  • PZZA announced it is bringing back a fan favorite, the Bacon Cheeseburger Pizza, available through March 15th.

Tuesday, February 3rd

  • BJRI announced the opening of its newest restaurant in Nanuet, New York.  The 8,000 square ft. restaurant seats approximately 250 guests.

Wednesday, February 4th

  • RUTH announced the opening of its newest restaurant in St. Petersburg, Florida. 

Thursday, February 5th

  • WEN was upgraded to positive at Susquehanna with a $13 PT.
  • KKD announced the termination of its tax asset plan and stock transfer restrictions.
  • EAT declared a quarterly dividend of $0.28 per share, payable on March 26, 2015 to shareholders as of March 6th, 2015.
  • EAT announced the election of Elaine L. Boltz to its Board of Directors.  Boltz is a Senior Vice President at TJX Companies and has previously held positions with The Boston Consulting Group, ANN Inc., and Chico’s FAS, Inc.

Friday, February 6th

  • DNKN entered into a $400 million accelerated share repurchase program with Goldman, Sachs & Co.  On February 10th, the company will pay Goldman $400 million in cash and will receive ~6,950,000 of the company’s common stock.


Sector Performance

The XLY (+4.2%) outperformed the SPX (+3.0%) last week.  Both casual dining and quick service stocks, in aggregate, underperformed the XLY.

Monday Mashup: CAKE, PNRA and More - 3


Monday Mashup: CAKE, PNRA and More - 4


Quantitative Setup

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

Monday Mashup: CAKE, PNRA and More - 5

Casual Dining Restaurants

Monday Mashup: CAKE, PNRA and More - 6

Monday Mashup: CAKE, PNRA and More - 7


Quick Service Restaurants

Monday Mashup: CAKE, PNRA and More - 8

Monday Mashup: CAKE, PNRA and More - 9

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Takeaway: Today we show why we think investors should be actively managing interest rate risk on much shorter durations for at least the next ~6-8wks.


Long Ideas/Overweight Recommendations

  1. Utilities Select Sector SPDR Fund (XLU)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. SPDR Gold Shares (GLD)
  4. Consumer Staples Select Sector SPDR Fund (XLP)
  5. iShares U.S. Home Construction ETF (ITB)
  1. LONG BENCH: PowerShares DB U.S. Dollar Index Bullish Fund (UUP), Vanguard REIT ETF (VNQ), Vanguard Extended Duration Treasury ETF (EDV), Healthcare Select Sector SPDR Fund (XLV)

Short Ideas/Underweight Recommendations

  1. iPath S&P GSCI Crude Oil Total Return ETN (OIL)
  1. SPDR Barclays High Yield Bond ETF (JNK)
  2. SPDR S&P Regional Banking ETF (KRE)
  3. Industrial Select Sector SPDR Fund (XLI)
  4. iShares MSCI Emerging Markets ETF (EEM)
  1. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



Revisiting Our #Quad414 Theme Because the January Jobs Report Told Us To: Obviously the JAN employment report was really good – not just relative to consensus expectations, but due to massive positive revisions in the NOV and DEC payrolls growth numbers and a +30bps bump in wage growth to +2.2% YoY (CLICK HERE for our full synopsis). 




The headline Nonfarm Payrolls growth figure slowed to +257k MoM from an upwardly-revised +329k in DEC. One month does not a TREND make, however, and we all know payrolls growth north of +300k is generally unsustainable. A growth rate of +257k is solid (i.e. in the 87th percentile of all readings over the trailing 10yrs) and speaks volumes to the pace of economic growth that my ultimately be reported in Q1.




This we know: the Q1 GDP comp is very easy and growth in both aggregate nominal income and average real incomes are accelerating on both a sequential and trending basis.










This we also know: we haven’t received a lot of meaningful economic data for the first quarter yet, but of the data points we have received, all are showing either continued sequential and/or trending accelerations (consumer confidence, employment) OR inflection/stabilization from a trend of deceleration (Markit PMI, ISM PMI).








It’s still very much early innings as far reported Q1 data is concerned, but growth bulls have to like what they’ve seen thus far for the month of January. It’s been a while…


As far as the key risk we outlined in our #Quad414 theme is concerned: will one-day bearish TRADES in fixed income and bond-like equities start to TREND – assuming that Friday’s market reaction was no aberration?


We don’t know for sure but our Real-Time Alerts signals on Friday would suggest which answer we think is most probable from these prices:


  • 2/6 @ 9:42am: Real-Time Alert: Macro Buy Signal: Munis (MUB)
  • 2/6 @ 10:40am: Real-Time Alert: Steiner Sell Signal: Bank of America (BAC)
  • 2/6 @ 3:24pm: Real-Time Alert: Macro Buy Signal: Utilities (XLU)
  • 2/6 @ 3:29pm: Real-Time Alert: Macro Sell Signal: Long Bond Bears (TBT)


In the interest of remaining transparent and accountable, it’s worth noting that we positioned for a Treasury bond rally into the Jobs Report as well, so we’re wrong on that for a day:


  • 2/5 @ 9:43am: Real-Time Alert: Macro Overbought Signal: US Dollar (UUP)
  • 2/5 @ 10:00am: Real-Time Alert: Macro Buy Signal: Utilities (XLU)
  • 2/5 @ 10:23am: Real-Time Alert: Steiner Sell Signal: Bank of America (BAC)
  • 2/5 @ 3:48pm: Real-Time Alert: Macro Buy Signal: Long Term Bonds (EDV)


All told, to the extent our #Quad414 theme continues to play out as planned, it’s much harder for an investor to justify a buy-and-hold strategy in TLT, EDV, MUB, ZROZ, VNQ, XLU, XLP and XLV here. As such, we think investors should be actively managing interest rate risk on much shorter durations for at least the next ~6-8 weeks.


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



Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.


The Hedgeye Macro Playbook (2/5)


#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.


Rainbows & Puppy Dogs | January Employment (2/6)


Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.


HOUSING: Purchase Apps | Easings & Accelerations (2/4)


Best of luck out there,




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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.                

European Banking Monitor: Greece Diverges From the Rest of Europe

Takeaway: A good jobs report lifts the U.S., while investor concerns over Greece are isolated to Greece.

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 




Key Takeaway:

Last week saw two notable events on the Macro risk front: 1) The ongoing game of bailout-chicken being played by Greece and the EU and 2) the labor market report on Friday. The favorable U.S. jobs report lifted domestic markets, as, apparently, good news has become good again.  On the other hand, with the announcement that the ECB will stop accepting Greek bonds as collateral, spreads on EFG Eurobank Ergasias blew out by +626 bps.  Interestingly, investors still perceive Greek risk as isolated to that country; European swaps at the median tightened by -2.6%.


European Financial CDS - Swaps mostly tightened in Europe last week.  The big news for the week was that the ECB will stop accepting Greek bonds as collateral.  Given that announcement, EFG Eugobank Ergasias swaps widened by a massive +626 bps.


European Banking Monitor: Greece Diverges From the Rest of Europe - chart1 financials CDS


Sovereign CDS – Sovereign swaps were little changed on the week with the largest moves coming from Portugal (-4 bps to 180 ) and Spain (+7 bps to 94).  


European Banking Monitor: Greece Diverges From the Rest of Europe - chart2 sovereign CDS


European Banking Monitor: Greece Diverges From the Rest of Europe - chart3 sovereign CDS


European Banking Monitor: Greece Diverges From the Rest of Europe - 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 10 bps.


European Banking Monitor: Greece Diverges From the Rest of Europe - chart5 euribor OIS spread



Matthew Hedrick 



Ben Ryan





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.    



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

Commodities Weekly Sentiment Tracker - chart1 sentiment


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

  • The RBOB GASOLINE, LEAN HOGS, and CORN markets are positioned for HIGHER PRICES near-term
  • The LIVE CATTLE, ULSD HEATING OIL, and SUGAR markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month spread


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

  • The NATURAL GAS, WTI CRUDE OIL, and BRENT CRUDE OIL markets are positioned for HIGHER PRICES in 1-year  
  • The LIVE CATTLE, COCOA, and COPPER markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1yr spread


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 - char4 open interest


Ben Ryan


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