The Economic Data calendar for the week of the 20th of June through the 24th of June is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
Takeaway: We are removing NuSkin and adding Lockheed Martin to Investing Ideas today.
As we head into the weekend, we’re making a few changes in Investing Ideas. We’re removing NuSkin (NUS) from the short side as a point of process. “I don't like letting a loss run,” Hedgeye CEO Keith McCullough wrote today. “Winners stay.”
On that note, we’re adding Lockheed Martin (LMT) to the long side. Hedgeye Potomac Senior Defense Policy Advisor LtGen Emerson "Emo" Gardner USMC Ret. will send out a full report outlining our high-conviction long thesis next week.
In a recent note to Institutional Subscribers, General Gardner explained:
"Like the House, the Senate is moving quickly to increase investment in big ticket programs in the FY17 Pentagon spending bill. With a bipartisan vote of 30-1, the Senate Appropriations Committee released its FY17 defense spending bill report and it is very good news for defense prime contractors.
Like the House, the Senate bill "finds" $15B to fund most of the services' unfunded priority lists for more fighters, more ships and higher readiness levels that were not requested by the President. Unlike the House, the Senate "finds" the money from within the President's request itself rather than by underfunding the OCO budget."
Takeaway: Not worth staying short w/o a clear catalyst against increasing take-out risk. But YELP is either a 2016 take-out, or a 2017 blow-up
Let us know if you have questions, or would like to discuss in more detail.
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Takeaway: Watch Retail Sector Head Brian McGough hosting Hedgeye’s The Macro Show this morning.
Retail Sector Head Brian McGough hosted Hedgeye’s The Macro Show this morning.
Notable Tickers: KSS, M, NKE, RL, FL, LULU, RH, AMZN, SHLD
Key topics include:
-May retail sales breakdown, and the ecommerce/AMZN impact.
-Updated industry SIGMA overview - sales, inventory, gross margin analysis.
-Recent negative consumer credit signals and retailers with high credit exposure.
-Callouts on key retail stocks.
Takeaway: Fear in the marketplace this week took the VIX into the 20s and drove futures and options volume to their highest levels all quarter.
Weekly Activity Wrap Up
With the VIX rising into the 20s this week, fear in the marketplace drove a wave of exchange traded volume particularly in derivatives. 24.9 million futures contracts per day traded through CME and ICE this week, the highest recorded weekly volume this quarter. That brings the 2Q16TD futures average daily volume (ADV) to 19.5 million, +11% higher than 2Q15. Options also saw their highest weekly volume so far this quarter, coming in at 17.9 million contracts per day, which brings the 2Q16TD ADV to 15.4 million, back in line with the year-ago quarter. Finally, cash equity volume grew week-over-week to 7.1 billion, bringing the 2Q16TD ADV to 7.0 billion, +10% higher than one year ago.
U.S. Cash Equity Detail
U.S. cash equities trading came in at 7.1 billion shares per day this week, bringing the 2Q16TD ADV to 7.0 billion. That marks +10% Y/Y growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 25% share of second-quarter volume, which is +91 bps higher Y/Y, while NASDAQ is taking a 17% share, -134 bps lower than one year ago.
U.S. Options Detail
U.S. options activity came in at a 17.9 million ADV this week, bringing the 2Q16TD average to 15.4 million, in line with the year-ago quarter. In the market share battle amongst venues, NYSE/ICE's 17% share of 2Q16TD volume is +24 bps higher than one year ago. Additionally, NASDAQ's 22% share is +13 bps higher year over year. BATS has also been taking share from the competing exchanges, up to an 11% share from 10% a year ago. Meanwhile, CBOE's 27% market share of 2Q16TD is down -62 bps Y/Y, although it has been rising in recent weeks. Finally, ISE/Deutsche's 14% share is -166 bps lower than 2Q15.
U.S. Futures Detail
19.4 million futures contracts per day traded through CME Group this week, the firm's highest level all quarter, bringing the 2Q16TD ADV to 14.9 million, +12% higher Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 109.7 million CME contracts pending, good for +20% growth over the 91.3 million pending at the end of 4Q15, although a contraction from the previous week's +27%.
Contracts traded through ICE came in at 5.5 million per day this week, breaking last week's record for the highest weekly volume all quarter and bringing the 2Q16TD ADV to 4.6 million, a +7% Y/Y expansion. ICE open interest this week tallied 64.8 million contracts, a +2% expansion versus the 63.7 million contracts open at the end of 4Q15, although a contraction from the previous week's +7%.
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.
Please let us know of any questions,
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
Patrick Staudt, CFA
Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email firstname.lastname@example.org.
I'm not the smartest fellow in the world, but I can sure pick smart colleagues.”
After the IN primary six short weeks ago, Donald Trump was atop some national polls and riding a high wave of Republican endorsements on his way to unifying the party, while Hillary Clinton was left to battle an insurgent and struggling to unite her own party. After two tumultuous weeks of picking fights with everyone in his path, Trump has found himself alone and losing momentum faster than ever.
Republicans have had a knee jerk reactions to criticizing the nominee early and often in the past, but the frequency with which they’re doing it now is different and more problematic. With less than a month before the convention, he hasn’t won endorsements from many of his former primary opponents, has yet to put together a core finance team and is creating tension with the RNC - his only (and largest) organizational back up for the next five months. Does this guy really want to win?
Our nation’s gun laws have many Democrats up in arms and now Trump - who throughout his campaign has expressed his opposition to gun control - has been prompted to meet with the National Rifle Association over the issue in the wake of the Orlando massacre. Trump has backed a no-buy list for FBI watch list members and the NRA has opposed the measure concerned that Americans wrongfully placed on list were being stripped of their constitutional rights to due process.
Tensions have emerged on Capitol Hill after a 15-hour filibuster by Senate Democrats has forced Republicans to hold votes on two separate gun measures - with PA Senator Pat Toomey being one of few Republicans willing to cross party lines on the issue.
When Senator Marco Rubio launched his presidential campaign, he made the bold promise of winning the White House or bust - but a lot has changed since then especially with Trump at the top of the ticket. Holding onto the Senate was always going to be a challenge for Republicans given the number of seats they had to defend and now with the political winds changing, Senate Majority Leader Mitch McConnell and his colleagues feel Rubio is their best hope to keep FL in the red column.
As the Democratic frontrunner, Rep. Patrick Murphy has been the beneficiary of the party’s growth in registration and fundraising in the state making him the early favorite…if Rubio doesn’t run. Rubio has exactly one week to decide if he’ll throw his hat in the ring.