MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES

Takeaway: Reminder: We will be hosting our Q3 2015 Financials Outlook & Themes call today, Monday, July 13th at 1:00pm EDT.

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - Financials Beach cartoon2015

 

Q3 2015 FINANCIALS THEMES OVERVIEW:

 

#Exchanges&Volatility - Volatility looks poised to break substantially higher on European angst and summer's seasonality and the exchange group will be a beneficiary of this dynamic. That said, there is collateral damage from the energy patch bust. We see a great opportunity in being long CME on the underappreciated upside to its earnings trajectory, and being short Intercontinental Exchange (ICE).

 

#Canada'sBankBubble - Canada's property market is poised for a generational correction while the Banking system has its head in the sand. De minimis reserves, thin capital/high leverage and Energy/CRE exposure paint a very asymmetric picture of vulnerability, especially when juxtaposed against the mythology of Canadian banking strength.    

 

#FinancialEngines & #Och Ziff - Two of our favorite SMID cap ideas on the long side. FNGN is a battleground small cap name that we think is misunderstood and undervalued. OZM has a secular tailwind from the rotational forces of pension assets into alternatives and is trading at its cheapest valuation in a decade.

 

  • Relevant Companies/Tickers:
  • Royal Bank of Canada (RY) (Market Cap $113 billion)
  • Toronto-Dominion Bank (TD) (Market Cap $100 billion)
  • CIBC (CM) (Market Cap $37 billion
  • Home Capital Group (HCG) (Market Cap $3 billion)
  • Genworth MI Canada (MIC) (Market Cap $3 billion)
  • CME Group (CME) (Market Cap $32 billion)
  • Intercontinental Exchange (Market Cap $26 billion)
  • T. Rowe Price (Market Cap $22 billion)
  • Och Ziff Capital Management (Market Cap $7 billion)
  • Virtu Financial (Market Cap $3 billion)
  • Financial Engines (Market Cap $2 billion) 

 

CALL DETAILS:

US Toll Free:

Toll Free:

Confirmation Number: 13613076

Materials: HERE

Outlook Calendar Reminder: HERE

 

 

********************************* 

 

Key Takeaway:

Last week's Greek woes remained contained to Greece as the broader EU complex appears de-coupled from what's happening within Greece. Not that it matters much in the short/intermediate term as the Eurozone has just agreed to a new €86 billion bailout package for Greece this morning.

 

Meanwhile, China's steel prices continue to plumb new lows, shedding another 2.5% on the week. We use Chinese steel prices as our proxy for the real economy. 

 

Current Ideas:

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM19

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 5 of 12 improved / 2 out of 12 worsened / 5 of 12 unchanged

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

 • Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM15

 

1. U.S. Financial CDS -  Swaps tightened for 17 out of 27 domestic financial institutions. Concluding a volatile week, the median week-over-week change in spreads ended at -1 bps.

 

Tightened the most WoW: HIG, AGO, AIG

Widened the most WoW: UNM, AON, MMC

Widened the least/ tightened the most WoW: CB, HIG, SLM

Widened the most MoM: MMC, MBI, ACE

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM1

 

2. European Financial CDS - Greek banks took it on the chin again last week as prospects for survival waned further. Outside of Greece, however, the broader European banking complex saw swaps tighten for the most part, indicating that contagion fears are nominal to non-existent at this point.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM2

 

3. Asian Financial CDS - Two of three Chinese Bank saw CDS improve last week. Additionally, all Indian Bank CDS improved. However, Japanese Bank swaps widened.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly tightened over last week. Italian sovereign swaps tightened the most, by -11 bps to 123.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM18

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM3

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM4

 

5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Turkish and Indian swaps tightened the most, by -5 bps to 214 and -5 bps to 165 respectively.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM16

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM20

 

6. High Yield (YTM) Monitor – High Yield rates rose 6 bps last week, ending the week at 6.68% versus 6.62% the prior week.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM5

 

7. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 1.0 points last week, ending at 1890.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM6

 

8. TED Spread Monitor – The TED spread was unchanged last week at 28 bps.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM7

 

9. CRB Commodity Price Index – The CRB index fell -2.6%, ending the week at 218 versus 224 the prior week. As compared with the prior month, commodity prices have decreased -2.4%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM8

 

10. 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 11 bps.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM9

 

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 5 basis points last week, ending the week at 1.21% versus last week’s print of 1.16%. 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 | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM10

 

12. Chinese Steel – Steel prices in China fell 2.5% last week, or 55 yuan/ton, to 2110 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 | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 176 bps, 1 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.9% upside to TRADE resistance and 2.6% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR | GREECE GETS ANOTHER BAND-AID WHILE CHINA HEMORRHAGES - RM14 3

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more