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Monday Mashup

Monday Mashup - CHARt 1

 

RECENT NOTES

8/11/15 LNCE | GOING IN LONG

8/10/15 LWAY | Sitting on a Gold Mine with no Tools

8/10/15 WWAV | KEEP RIDING THIS WAVE

8/6/15 WWAV | EARNINGS PREVIEW & POTENTIAL ACQUISITION

8/05/15 K | IS CEREAL RESUSCITATING THE COMPANY?

8/4/15 BETR | It’s Already Popped

 

RECENT NEWS FLOW

Friday, August 14

SYY | Issues statement on Trian Partners announcement (click here for article)

TSN | Reducing beef production capacity due to continued lack of available cattle (click here for article)

 

Thursday, August 13

GMO’s | Not everyone knows what GMO’s are but 87% of consumers think non-GMO is healthier (click here for article)

GIS | Wheaties brand extending into craft beer, although not expected to pick up sales of Wheaties cereal, it is an interesting collaboration between two Minneapolis based companies (click here for article)

 

Wednesday, August 12

FLO | Announced a definitive agreement to acquire Dave’s Killer Bread for $275mm (click here for article)

DF | Insider trading probe at DF involving ex-Chairman and golfer Phil Mickelson (click here for article)

KHC | Announced the cut of 2,500 jobs in North America (click here for article)

POST | The company priced $800mm aggregate principal amount of 7.75% senior notes due 2024 at par and $400mm aggregate principal amount of 8.00% senior notes due 2025. Additionally, POST is offering 5.85mm shares at a price of $60 per share (click here for article)

 

Tuesday, August 11

HSY | Launches tender offer for 8.80% debentures due 2021 and 7.20% debentures due 2027 (click here for article)

 

SECTOR PERFORMANCE

Food and organic stocks that we follow outperformed the XLP last week. The XLP was flat last week, the top performer from our list was Post Holdings (POST) posting an increase of +14.1%. Worst performing company on our list was once again Amira Natural Foods (ANFI), which was down -18.4%.

Monday Mashup - CHART 2

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP remains bullish on a TRADE and TREND duration.

Monday Mashup - CHART 3

 

Food and Organic Companies

Monday Mashup - CHART 4

Monday Mashup - CHART 5

 


MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT

Takeaway: The PBOC's pledge to allow its currency to depreciate sparked global concerns over the country's economic growth.

Key Takeaway:

Global markets were jolted last week as China's move to allow its currency to depreciate brought concerns over its growth to the forefront. The country's interbank rate in particular flashed red, rising 14 bps week over week. Additionally, CDS widened globally, especially in emerging markets, in response to the PBOC's move.

 

China's interbank rate, a gauge of systemic stress in the Chinese banking system, has been steadily rising for over a month. As we have pointed out, that stress and slowing Chinese growth are currently our biggest concern with regard to global financial risk.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM19

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 0 of 12 improved / 4 out of 12 worsened / 8 of 12 unchanged

 • Intermediate-term(WoW): Negative / 4 of 12 improved / 8 out of 12 worsened / 0 of 12 unchanged

 • Long-term(WoW): Positive / 3 of 12 improved / 1 out of 12 worsened / 8 of 12 unchanged

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM15 2

 

1. U.S. Financial CDS -  Swaps widened for 18 out of 27 domestic financial institutions. China allowing its currency to depreciate last week sparked global concerns over slow Chinese growth and left U.S. financial CDS wider by 2 bps at the median.

 

Tightened the most WoW: HIG, ALL, AXP

Widened the most WoW: RDN, CB, MET

Tightened the most WoW: ACE, AXP, CB

Widened the most MoM: GNW, MET, RDN

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM1

 

2. European Financial CDS - Swaps were mixed in Europe last week. 17 CDS' tightened while 20 widened. Greek bank CDS tightened between 321 and 3083 bps as European finance ministers approved an €86 billion bailout for the country on Friday.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM2

 

3. Asian Financial CDS - Swaps in Asia widened across the board as China's move to allow its currency to depreciate caused global concerns over the country's growth. CDS for the IDB Bank of India and the Bank of China widened the most, by 12 bps to 220 and by 10 bps to 121, respectively.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM17

 

4. Sovereign CDS – Most sovereign swaps were flat last week. Spanish sovereign swaps, which widened by 3 bps to 98, were the biggest mover for the week.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM18

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM3

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM4

 

5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Thai sovereign swaps widened the most, by 22 bps to 134. Meanwhile, Brazilian swaps tightened by -21 bps to 305.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM16

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM20

 

6. High Yield (YTM) Monitor – High Yield rates rose 14 bps last week, ending the week at 7.21% versus 7.06% the prior week.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM5

 

7. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 6.0 points last week, ending at 1870.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM6

 

8. TED Spread Monitor – The TED spread fell 1 basis point last week, ending the week at 24 bps this week versus last week’s print of 25 bps.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM7

 

9. CRB Commodity Price Index – The CRB index fell -0.9%, ending the week at 198 versus 200 the prior week. As compared with the prior month, commodity prices have decreased -7.7%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - 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 10 bps.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM9

 

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 14 basis points last week, ending the week at 1.67% versus last week’s print of 1.53%. 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 | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM10

 

12. Chinese Steel – Steel prices in China rose 0.3% last week, or 6 yuan/ton, to 2355 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 | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 148 bps, 3 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM13

 

14. XLF Macro Quantitative Setup –  Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TRADE resistance and 1.3% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR | PBOC'S DEVALUATION BRINGS CHINESE RISK TO THE FOREFRONT - RM14 2

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Fed Fishing?

“Many men go fishing all of their lives without knowing it’s not the fish they are after.”
-Henry David Thoreau

 

In case any of you emailed me and got a “Gone Fishing” auto-reply, I checked out on Tuesday night of last week to go on what has become an annual Hedgeye Fishing Trip to my homeland on Lake Nipigon. It was epic.

 

Fed Fishing? - z dj

 

Got volume? Often called the “Sixth Great Lake”, Lake Nipigon is massive. It has a surface area of 1,872 square miles and average and max depths of 180 and 541 feet, respectively (Wikipedia).

 

So now I’ll try to make the literary-transition from a place where there were no other humans to where there was no volume. On Friday, Total US Equity Market Volume was down -22% and -33% vs. its 1-month and 1-year averages. Wow.

 

Back to the Global Macro Grind

 

Buying markets on slow-to-no-volume UP days is not what I do. I like to buy/cover on capitulation (low-end of my immediate-term risk range) DOWN days. For many things High Beta #Deflation, that day was Wednesday of last week.

 

By week’s end, what the growth bulls call “reflation” finally had an up week. Not up huge, but up. And that’s mainly because the US Dollar ended up closing down -1% (US Dollar Index) on the week.

 

If you look at the week-over-week moves in Global FX vs. the month-over-month, here’s what that added up to:

 

  1. US Dollar Index -1.0% on the wk = -0.1% month-over-month
  2. Euro (vs. USD) +1.3% on the wk = +0.9% month-over-month
  3. Canadian Dollar +0.3% on the wk = -2.8% month-over-month
  4. Brazilian Real +0.7% on the wk = -9.9% month-over-month
  5. Russian Ruble -1.4% on the wk = -13.1% month-over-month

 

In other words, the closer a country’s leverage is to what’s been crashing for the last 1-3 months (commodity “reflation” expectations, Oil, etc.), the less of a “bounce” it got on Down Dollar last week.

 

Here’s how Commodities themselves did last week:

 

  1. CRB Commodities Index -0.2% on the wk = -9.8% month-over-month
  2. Oil (WTI) down another -4.1% on the wk = -21.3% month-over-month
  3. Gold finally had a real up wk of +1.9% = -3.6% month-over-month
  4. Silver was +2.5% on the wk = -0.8% month-over-month
  5. Copper was +0.6% on the wk = -7.5% month-over-month

 

Yes, it is rather damning for the USD to have one of its biggest down weeks of the summer and see both the commodities index and oil continue to crash/deflate (for those who remain long of them, that is).

 

That said, if you pivoted, hard (on Wednesday), and bought/covered anything US Equities that was in the midst of a -7% (Russell 2000) to -15% (Energy Stocks) draw-down, you crushed it last week.

 

Even though the world couldn’t find it in them to buy Brazilian Stocks (down another -2.1% on the wk, and down -10.7% in the last month), hedge funds that were short US Energy and Utility stocks evidently had to buy/cover, for a trade:

 

  1. Energy Stocks (XLE) were +3.4% on the wk, but are still down -7.0% in the last month
  2. Utilities (XLU) were +2.7% on the wk, and continue to have a big relative move +6.1% in the last month

 

You see, the one thing that the Utilities (XLU) long position has going for it that “reflation” bulls don’t is called … drumroll … #Deflation! Yep, as both US growth and global inflation expectations fall, so do sovereign bond yields.

 

With the US 10yr Treasury Yield down another -3 basis points this morning, it’s almost down as much in the last month as inflation expectations themselves:

 

  1. US 10yr Treasury Yield -24 basis points in the last month to 2.17%
  2. US 5yr Break-Evens -33 basis points in the last month to 1.28%

 

And sure, there’s something like “82% of economists polled” at some Old Wall media outlet still looking for a “rate hike” in September. And maybe this un-elected Fed is under enough political pressure to do just that…

 

And… if they do that, as both growth and inflation expectations continue to map their respective cyclical and secular slow-downs, they run the very obvious risk of being THE catalyst for the next Dollar Up, #Deflation of levered asset prices.

 

I’m betting many at the Federal Reserve have spent their entire central-planning lives not knowing that they are the catalyst some of us are still looking for.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.12-2.24%

SPX 2071-2106
VIX 12.03-14.32
EUR/USD 1.08-1.11
Oil (WTI) 41.35-44.11

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fed Fishing? - 08.17.15 chart


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.

CHART OF THE DAY: Reflation-Trade (Head Fake)

Editor's Note: Below is a chart and brief excerpt from this morning's Early Look written by Hedgeye CEO Keith McCullough. Click here if you're interested in learning more and how you can subscribe.

 

...Yes, it is rather damning for the USD to have one of its biggest down weeks of the summer and see both the commodities index and oil continue to crash/deflate (for those who remain long of them, that is).

 

CHART OF THE DAY: Reflation-Trade (Head Fake) - 08.17.15 chart


The Macro Show Replay | August 17, 2015

 


Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

8/11/15 SHAK | PLANTING FLAGS

8/10/15 July Restaurant Sales and Employment Trends

8/7/15 BOJA | BO’S DILEMMA

8/6/15 MCD | GETTING MORE BULLISH

8/6/15 WEN | Performing Well for Now

 

RECENT NEWS FLOW

Friday, August 14

BWLD | Completed previously announced acquisition of 41 restaurants (click here for article)

Beef | U.S. net exports of beef continue to decline (click here for article)

 

Thursday, August 13

YUM | Plans to open 400 new restaurants in Turkey, they currently have 100, of which they own 99 of them (click here for article)

MCD | Increases the size of their quarter pounder by 0.25 ounces to make the burger weigh 4.25 ounces (click here for article)

 

Wednesday, August 12

SHAK | Announced pricing of secondary offering of 4,000,000 shares at a price of $60.00 per share (click here for article)

 

Tuesday, August 11

SHAK | Raising minimum wages in Washington, DC to $12/hr (click here for article)

WEN | Entered into the previously announced accelerated repurchase program to buy back 14.36 million shares of common stock (click here for article)

JMBA | Is the latest company to join the mobile ordering craze, their new mobile order app will be enabled at 200 locations to start off (click here for article)

FRGI | Named Willie Romeo its first corporate director of off-premise consumption, as the brand intensifies focus on to-go and catering (click here for article)

DNKN | To open two locations in Baton Rouge, to open in Fall 2016 (click here for article)

 

SECTOR PERFORMANCE

Casual dining and quick service stocks, in aggregate, underperformed the XLY last week. The XLY was up 0.1%, top performers from casual dining were KONA and CHUY posting an increase of 3.5% and 3.0%, respectively, while HABT and KKD led the quick service pack up 7.1% and 5.2%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLY looks bearish from a TRADE perspective, but bullish in the TREND duration, with TREND support at 77.34.

Monday Mashup - CHART 4

 

CASUAL DINING RESTAURANTS

Monday Mashup - CHART 5

Monday Mashup - CHART 6

 

QUICK SERVICE RESTAURANTS

Monday Mashup - CHART 7

Monday Mashup - CHART 8


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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