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HEDGEYE Exchange Tracker | Same Old Playbook for London

Takeaway: ICE seems to be gearing up for an '07 style bidding war for the LSE akin to the playbook executed for CBOT.

The forming competitive bidding process for the London Stock Exchange Group (LSE LN) looks a lot like the 2007 bidding war for the Chicago Board of Trade (CBOT) by CME and ICE. In our view, ICE never presented the best industrial logic as the CBOT acquirer however with its competing bid for the Chicago Board, ICE ensured that CME paid top dollar for its across town rival. In the end the original bid of $7.9 billion by CME, ended up on sweetened terms at $9.2 billion in '07, as ICE made a case of an anti-competitive conglomerate and a lack of competition in U.S. rates (which none-the-less resulted in the creation of the CME Group). Regardless of how the LSE saga unfolds, out-of-the-money call options on the target have always been a decent way to express a view on what can be a lengthy exchange takeout battle. ICE stockholders seem to be looking for a break from its deal flow with the recent stock decline and also the fear of the acquisition of another hyper-competitive cash equity business.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - LSE ICE 

 

Weekly Activity Wrap Up

Volume expanded week-over-week in all three U.S. exchange traded categories pushing 1Q16TD average daily volumes (ADVs) well above their year-ago levels. Cash equity volume for the week came in at 8.8 billion shares traded per day, bringing the 1Q16TD ADV to 9.0 billion, up +30% Y/Y. Futures activity at CME and ICE came in at 22.5 million contracts traded per day this week, bringing the 1Q16TD ADV to 23.8 million, up +19% Y/Y. Additionally, CME's open interest currently tallies 115.8 million contracts, +27% higher than the 91.3 million pending at the end of 2015, which ensures robust trends for the foreseeable future. Options came in at 16.8 million contracts traded per day this week, bringing the 1Q16TD ADV to 17.7 million, up +14% Y/Y. 

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon1

  

U.S. Cash Equity Detail

U.S. cash equities trading came in at 8.8 billion shares per day this week, bringing the 1Q16TD average to 9.0 billion shares per day. That marks +30% Y/Y and +28% Q/Q growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of first-quarter volume, which is consistent with the prior quarter and year-ago quarter, while NASDAQ is taking an 18% share, -157 bps lower than one year ago.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon2

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon3

 

U.S. Options Detail

U.S. options activity came in at a 16.8 million ADV this week, bringing the 1Q16TD average to 17.7 million, a +14% Y/Y and +11% Q/Q expansion. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +72 bps higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -396 bps lower than 1Q15. CBOE's market share is down -144 bps Y/Y but has improved recently; its 27% share of 1Q16TD volume is up +135 bps from 4Q15. BATS and ISE/Deutsche have been taking share from the competing exchanges, with BATS up to a 10% share from 9% a year ago and ISE/Deutsche taking 15%, up from 13% a year ago.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon4

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon5

 

U.S. Futures Detail

17.0 million futures contracts traded through CME Group this week, bringing the 1Q16TD average to 18.1 million, a +20% Y/Y and +37% Q/Q expansion. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 115.8 million CME contracts pending, good for +27% growth over the 91.3 million pending at the end of 4Q15, an improvement from last week's +24%.

 

Contracts traded through ICE came in at 5.5 million per day this week, bringing the 1Q16TD ADV to 5.8 million, +15% Y/Y and +21% Q/Q growth. ICE open interest this week tallied 69.8 million contracts, a +10% expansion versus the 63.7 million contracts open at the end of 4Q15, an improvement from last week's +8%.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon6

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon8

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon7

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon9 

 

Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon10

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon11

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon12

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon13

 

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon14

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon15

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

 


A Guide For Trading The Recent Bounce In Oil Prices

A Guide For Trading The Recent Bounce In Oil Prices - Oil cartoon 12.28.2015

 

What's the latest bullish catalyst for permabulls? 

 

We've had a massive 35% rally in oil from the February lows. With oil prices up, we may be closing in on another opportunity to short oil and energy stocks. Here's some analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning. 

 

"Oh, right, that’s going on too. Oil up +2.1% this morning is another big-bite reason to keep reflation bulls in the game here – immediate-term risk range (dynamic) $31.66-39.45/barrel for WTI as Oil Volatility’s risk range remains surreal at 48-60. We are much more bearish on the Financials than Energy, but would love another shot (short side) closer to $40 Oil."

 

 

Remember... chest-thumping permabulls were touting reflation back in October 2015 too. We remember how that turned out.


RTA Live: March 11, 2016

 

 

 


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CHART OF THE DAY: 3 Questions To Ask Yourself About Global Equities

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... In the span of a night’s sleep, my inbox has gone from “nice call Keith – I can’t believe the Euro ripped on Draghi Day and that they closed European stocks on the lows”… to “omg, omg – Keith, what about the LTR-triple-whiz-bang-Coco buying – can’t it work?”…

 

Do you really think Mr. Market cares what I think? The Question remains – what do you believe?

 

  1. Do you believe that the Japanese Economic and Profit Cycles are accelerating or slowing?
  2. Do you believe that the European Economic and Profit Cycles are accelerating or slowing?
  3. Do you believe that the US Economic and Profit Cycles are accelerating or slowing?" 

 

CHART OF THE DAY: 3 Questions To Ask Yourself About Global Equities - EUR CoD


Eurocopter!

“I believe I can fly – I believe I can touch the sky…”

-R. Kelly

 

“I think about it (what can make markets go up, not down) every night and day… spread my wings and fly away.”

 

You remember the tune, right? While the 1996 movie (Space Jam with Michael Jordan and Bugs Bunny) was forgettable, Rolling Stone named I Believe I Can Fly one of the Top 500 songs of all time!

 

It’s perfect for whoever wants to get plugged chasing European stocks again this morning on the effervescent hope that the belief-system-in-central-market-planning isn’t breaking down.

 

Eurocopter! - Draghi cartoon 11.21.2014 large

 

Back to the Global Macro Grind

 

Has anything that’s happened in 2016 Japanese and/or European FX vs. Equity trading changed your mind on how this grand central-market-planning experiment ends? Or does the daily color on your screens drive your belief system?

 

“If I can see it, then I can be it

If I just believe it, there’s nothing to it”

 

In the span of a night’s sleep, my inbox has gone from “nice call Keith – I can’t believe the Euro ripped on Draghi Day and that they closed European stocks on the lows”… to “omg, omg – Keith, what about the LTR-triple-whiz-bang-Coco buying – can’t it work?”…

 

Do you really think Mr. Market cares what I think? The Question remains – what do you believe?

 

  1. Do you believe that the Japanese Economic and Profit Cycles are accelerating or slowing?
  2. Do you believe that the European Economic and Profit Cycles are accelerating or slowing?
  3. Do you believe that the US Economic and Profit Cycles are accelerating or slowing?

 

Moreover, what did you believe when it mattered 7%-25% higher across Global Equity markets?

 

  1. Do you believe that the market impact of #GrowthSlowing can be “smoothed” by central-market-planners?
  2. Do you believe that even though you don’t think that’s a “free market”, that it can happen anyway?
  3. Do you believe that since many believe markets can never really go down that they won’t?

 

I can tell you what I believe:

 

  1. Rates of change in growth and inflation can be measured, mapped, and capitalized on in macro markets
  2. When the rates of change go obviously negative, central-planners enter your decision making matrix
  3. When they corroborate reality (growth slowing) with policy panic, the belief system breaks down

 

Huh? Don’t you remember what happened in the USA in early to mid-2008? Don’t you remember when Larry Kudlow would get on a “markets in crisis” segment of CNBC begging the Fed for “shock and awe rate cuts to zero”?

 

It’s one thing to “cut rates 600 times, globally” during a 5-7 year Global Economic expansion. It’s entirely another to keep pushing on that string of a very tenuous belief-system AFTER economic cycles have already peaked and you’re about to enter a #recession!

 

Oh, right. No worries. Everyone who didn’t call the slow-down to begin with is very sure that the “probability of a US recession is now 20% vs. 21%” in the recent WSJ poll of linear-economists.

 

Lol

 

Quick question on that: if the probability is so “low”, what’s up with US investors begging Draghi to fly with “helicopter money” (and the Fed “being on hold” when they’re allegedly “raising rates”)?

 

I know. I know. Too many questions for a Friday. Futures are “ripping”, Bro!

 

Back to lecturing humans on flying, please note that when asked yesterday in the press conference, Draghi said “we haven’t discussed helicopter money… but it is interesting… although it does have some legal and accounting complexity.”

 

I believe I can stop there.

 

Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND Research Views in brackets):

 

UST 10yr Yield 1.69-1.95% (bearish)

SPX 1 (bearish)
RUT 1007-1103 (bearish)

NASDAQ 4 (bearish)

Nikkei 152 (bearish)

DAX 9 (bearish)

VIX 15.88-22.66 (bullish)
USD 96.52-98.70 (bullish)
EUR/USD 1.08-1.11 (bearish)
YEN 111.69-114.63 (bullish)
Oil (WTI) 30.89-38.99 (bearish)

Nat Gas 1.61-1.86 (bearish)

Gold 1 (bullish)
Copper 2.10-2.30 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Eurocopter! - EUR CoD


HIBB | The Anti-ULTA

Takeaway: Two polarizing earnings reports today…ULTA and HIBB. One should double, the other cut in half.

Two earnings reports caught our eye this morning – ULTA, one of the most defendable growth stories in retail today, and its polar opposite on the quality spectrum – Hibbett Sports.  ULTA is one of those names we’ll buy on the down days, and this certainly won’t be one of them. Hibbett, however, is uninvestable to us at any price starting with a $2 – which is 50% below current levels. We thought it was a short at $49, and perhaps even a better one at $36.

 

As for the quarter…

The company beat expectations by 3 pennies, but that hardly matters. The growth algorithm was simply horrendous. A -0.6% comp, +2.7% growth in revenue, and a 14% EBIT erosion.

HIBB threw Wall Street a bone by talking about investing in ‘omnichannel’ business platform. Mind you, HIBB is the ONLY retailer out there that does not have a dot.com platform. I’m pretty sure that the reason that HIBB does not have a dot.com platform is because Nike does not want them to. We might call that a conspiracy theory if it didn’t have so much truth to it.  As for the ‘omnichannel’ platform, isn’t that a retail buzzword that real companies stopped using about three years ago?  No matter…HIBB is severely low-balling the cost of a dot.com business. Having the ability to ship from store to home does not make up for a 10-year deficit in spending on a general growth driver.

 

The funny thing is that the omnichannel comments weren’t even the most notable part of the print… it was the fact that inventories were up 18% on a -0.6% comp and 2.7% revenue increase. This couldn’t be spelled out better than in our HIBB SIGMA below. The company took its worst turn to the lower left quadrant this entire economic cycle. So inventories are too high, sales are too weak, margins have already eroded, and capital spending is picking up (too little too late) to try to tap into e-comm.

 

HIBB just reported $2.87 a share. We think it’s more likely that it earns below $2.00 next year than over $3.00 (i.e. 32%+ downside is more likely than 3% upside).

 

All in, margins should get cut in half by 2018 at HIBB, and the stock along with it.

 

HIBB | The Anti-ULTA - 3 11 2016 chart1


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