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Daily Market Data Dump: Monday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

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Daily Market Data Dump: Monday - equity markets 6 20

 

Daily Market Data Dump: Monday - sector performance 6 20

 

Daily Market Data Dump: Monday - volume 6 20

 

Daily Market Data Dump: Monday - rates and spreads 6 20

 

Daily Market Data Dump: Monday - currencies 6 20


MONDAY MORNING RISK MONITOR | BREXIT FIXATION

Takeaway: The market is fixated on Brexit. Today, the market is positive. Last week, the story was fear. The overall takeaway: volatility.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM11

 

Key Takeaway:

Although markets are reacting positively this morning to a poll showing the UK is more likely to stay in the EU, fear prevailed last week, and risk measures flashed mostly red. The overall takeaway is that the upcoming Brexit vote on Thursday is creating volatility on both sides of the dial. CDS widened globally last week, even in the US where the resilience of recent weeks gave way and the median bank swap widened by 10 bps to 99. Additionally, the high yield YTM jumped by 15 bps to 7.26%, and the CDOR-OIS spread, a measure of counterparty risk in Canada, widened by 1 bps to 40.

Risk measures in our heat map below are mostly negative across all durations.

 

Current Ideas:
MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 2 of 13 improved / 6 out of 13 worsened / 5 of 13 unchanged
• Intermediate-term(WoW): Negative / 1 of 13 improved / 7 out of 13 worsened / 5 of 13 unchanged
• Long-term(WoW): Negative / 2 of 13 improved / 3 out of 13 worsened / 8 of 13 unchanged

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM15


1. U.S. Financial CDS
– With investors worrying about the domestic implications of a Brexit, all domestic financials swaps widened last week. Moneycenters were most heavily affected, widening by an average 10 bps.

Widened the least WoW: AON, GNW, ALL
Widened the most WoW: MS, GS, C
Widened the least WoW: AON, RDN, SLM
Widened the most MoM: MS, GS, WFC

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM1

 

2. European Financial CDS – With Thursday's Brexit vote approaching, Financials swaps mostly widened in Europe last week. The median CDS widened by 9 bps to 131.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM2

 

3. Asian Financial CDS – Chinese bank swaps all widened, in part due to MSCI deferring the addition of China's A shares to the EM Index. That deferral delays an expected capital inflow to the country of tens of billions of dollars. In India, 2 of 3 financials swaps widened.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM17

 

4. Sovereign CDS – Sovereign swaps mostly widened over last week. Portuguese swaps stood out, widening by 33 bps to 316.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM18

 

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Russian sovereign swaps widened the most, by 15 bps to 264. Meanwhile, with Rio de Janeiro declaring a state of financial disaster so that it can more easily manage the government's scant resources, Brazilian swaps tightened by -2 bps to 341.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM16

6. High Yield (YTM) Monitor – High Yield rates rose 15 bps last week, ending the week at 7.26% versus 7.11% the prior week.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index fell 9.0 points last week, ending at 1901.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM6

8. TED Spread Monitor  – The TED spread fell 2 bps last week, ending the week at 39 bps this week versus last week’s print of 41 bps.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM7

9. CRB Commodity Price Index – The CRB index fell -1.8%, ending the week at 192 versus 196 the prior week. As compared with the prior month, commodity prices have increased 4.4%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - 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 9 bps.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 1 basis point last week, ending the week at 2.01% versus last week’s print of 2.00%. 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 | BREXIT FIXATION - RM10

12. Chinese Steel – Steel prices in China rose 0.1% last week, or 3 yuan/ton, to 2339 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 | BREXIT FIXATION - RM12

13. Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 149.5 trillion RMB as of May 31, 2016 (data released 6/15/2016), which is up +15.5 trillion RMB or +11.5% year over year. Month-over-month, credit is up +553 billion RMB or +0.4%. Note: this data is only updated monthly.


MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM20

15. 2-10 Spread – Last week the 2-10 spread was unchanged last week at 91 bps. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM13

16. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 1 bps to 40 bps.

MONDAY MORNING RISK MONITOR | BREXIT FIXATION - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT

 

Patrick Staudt, CFA



A Closer Look At Brexit, European Equities, & Pound Vs. USD

A Closer Look At Brexit, European Equities, & Pound Vs. USD - pound 6 20

 

"Thank goodness for no Brexit - we were running out of global equity bull market catalysts!" Hedgeye CEO Keith McCullough wrote in a note to subscribers this morning.

 

European equity markets surged on the news that Brexit polling showed a "resurgence" of the "Remain" camp. Here's the latest from MarketWatch:

 

"An opinion poll by Survation for newspaper the Mail on Sunday showed 45% in favor of remaining and 42% in favor of leaving. That telephone poll was conducted Friday and Saturday, after the killing of British politician Jo Cox. It shows a swing back to “remain,” as a previous survey conducted on Thursday by Survation had put Brexit in the lead by 3 points."

 

A Closer Look At Brexit, European Equities, & Pound Vs. USD - european equities 6 20 16

 

But take a look at the latest aggregate polling below, which shows "stay or leave" odds at essentially a coin toss (with 11% of the electorate undecided heading into Thursday's vote):

 

A Closer Look At Brexit, European Equities, & Pound Vs. USD - polling brexit

 

Here's additional Brexit analysis from McCullough:

 

"FTSE: +2.6% (DAX +3.3%) in a straight line to 6172 with intermediate-term TREND line up at 6335; anything that isn’t closed in Global Equity markets doing the same so they better not Brexit!"

 

 

"Big pop for Pound vs. USD of +1.8% taking it right back to where it’s been twice now (1.46-1.47) in both April and May; can it hold? Sure. Can it do this every day? Doubt it. Everything reflation should love it today regardless (Dollar Down)"

 

 

Finally, take a look at today's Chart of the Day, which shows the Pound/U.S. Dollar fluctuations tightly tracking Brexit "Remain" odds.

 

A Closer Look At Brexit, European Equities, & Pound Vs. USD - 06.20.16 Chart

 

More to come.


Thank goodness for no Brexit!

Client Talking Points

Pound

Big pop for Pound vs. USD of +1.8% taking it right back to where it’s been twice now (1.46-1.47) in both April and May; can it hold? Sure. Can it do this every day? Doubt it. Everything reflation should love it today regardless (Dollar Down).

FTSE

+2.6% (DAX +3.3%) in a straight line to 6172 with intermediate-term TREND line up at 6335; anything that isn’t closed in Global Equity markets doing the same so they better not Brexit!

UST 10YR

UST 10yr Yield +5bps to 1.66% on the potential of no-Brexit news or were bond yields oversold on #GrowthSlowing realities in US employment data. Shouldn’t take macro markets long to differentiate between the two once we get through today; 10yr Gilt +6bps to 1.21% vs. Spanish 10yr down -8bps to 1.43%.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/19/16 66% 2% 0% 8% 20% 4%
6/20/16 64% 4% 0% 10% 18% 4%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/19/16 66% 6% 0% 24% 61% 12%
6/20/16 64% 12% 0% 30% 55% 12%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

No matter what side of the reflation/deflation trade you’re on, the growth in global demand continues to decelerate on a trending basis. The debate is no longer whether or not growth is slowing. The real debate centers on the policy response and the market reaction to that policy response. While that question presents us with “open the envelope” risk, #GrowthSlowing will continue to be the bull catalyst for U.S. Treasuries whatever the policy response as the slow march to zero yields globally goes on. 

GLD

To sum things up, stay away from the guessing game and stick to what is empirically evident. A stronger USD over the longer term is a probable scenario in our book. We expect the Fed, and all central banks for that matter, will try to combat deflation. That said, global currencies all burning at the same time makes a compelling case for GLD, as gold knows no currency. You can sell it in local currency all over the world. Scary but true.

MCD

There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.

Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road

TWEET OF THE DAY

Capital Brief: Donald Under Duress? ... & #Rubio Reconsiders app.hedgeye.com/insights/51791… via @HedgeyePotomac #Trump pic.twitter.com/ZDOwrgzjz1

@Hedgeye

QUOTE OF THE DAY

“Never tell your problems to anyone…20% don’t care and the other 80% are glad you have them.”

 -Lou Holtz

STAT OF THE DAY

Lebron James scored 27 points in last nights Game 7 win.


CHART OF THE DAY: The Volatile Brexit Crapshoot

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.

 

"... So if they the British don’t exit… and:

 

  1. The British Pound ramps right back to where it’s been multiple times this year ($1.46-1.47)
  2. The FTSE rips right back to intermediate-term @Hedgeye TREND resistance of 6335
  3. All equity markets worldwide go straight up …

 

What could possibly go wrong?

 

Nothing, obviously. Until the causal factor (worldwide cyclical and secular #GrowthSlowing) on why most things political that are American, Chinese, European, Japanese, etc. aren’t dying starts to get reported again, that is…"

 

CHART OF THE DAY: The Volatile Brexit Crapshoot - 06.20.16 Chart


A New Exit!

“I don’t believe in dying. It’s been done. I’m working on a new exit. Besides, I can’t die now – I’m booked.”

-George Burns

 

The late George Burns was a beauty. So is this global stock market. Of all the 1-12 month old narratives on why it can’t die now, “no Brexit” has to be the best one I’ve heard so far. Especially for super short-term investors, it’s the most irrefutable!

 

A New Exit! - Brexit cartoon 06.16.2016

 

Back to the Global Macro Grind

 

So if they the British don’t exit… and:

 

  1. The British Pound ramps right back to where it’s been multiple times this year ($1.46-1.47)
  2. The FTSE rips right back to intermediate-term @Hedgeye TREND resistance of 6335
  3. All equity markets worldwide go straight up …

 

What could possibly go wrong?

 

Nothing, obviously. Until the causal factor (worldwide cyclical and secular #GrowthSlowing) on why most things political that are American, Chinese, European, Japanese, etc. aren’t dying starts to get reported again, that is…

 

Before we get all emotional this morning and chase another chart to lower-highs on green, let’s take a step back and review where Global Equity markets are vs. June 20th (today) of 2015:

 

  1. SP500 = down -1.4%
  2. Dow = down -1.5%
  3. Nasdaq = down -5.2%
  4. Russell 2000 = down -9.7%
  5. Financials (XLF) = down -9.7%
  6. Utilities = UP +17.5%
  7. MSCI REIT = UP +9.9%
  8. US Equity Volatility (VIX) = UP +33.9%
  9. EuroStoxx600 = down -15.1%
  10. China (Shanghai Comp) = down -41.9%
  11. Hang Seng = down -24.6%
  12. Nikkei = down -22.8%
  13. MSCI World = down -7.2%
  14. MSCI EM = down -16.8%
  15. MSCI LATAM = down -17.0%

 

Don’t worry. I’m not just cherry picking the year-over-year return today. I can do this, every day, for the next month and the year-over-year return in most things US Equities will actually get worse.

 

What’s been getting better and better for the last year has been the relative and absolute return of being long assets that do well when real economic growth is slowing.

 

This is why longer-term bonds (and stocks that look like bonds) have been crushing it:

 

  1. US 10yr Yield = down 71 basis points year-over-year
  2. German 10yr Yield = down 79 basis points year-over-year
  3. Italian 10yr Yield = down 80 basis points year-over-year
  4. China 10yr Yield = down 70 basis points year-over-year
  5. South Korean 10yr Yield = down 96 basis points year-over-year
  6. Indonesian 10yr Yield = down 97 basis points year-over-year
  7. Japanese 10yr Yield = down 63 basis points year-over-year

 

Will a “no-Brexit” change this very obvious intermediate-term TREND? On its own, no. Time will.

 

Because it doesn’t line up with their own investment mandates (i.e. always be long so timing can’t really ever matter), this is what most equity bench-marking Portfolio Managers have had wrong for the last year – timing the economic cycle.

 

Time can’t die now. Barring any miracle that most of the central planning that’s been attempted can stop #TheCycle from doing what it always does when it laps the peaks of the economic, profit, and credit cycles… the cycle will continue to slow.

 

As the latest of #LateCycle components of a cycle slow (employment growth, consumer credit, advertising/marketing, business travel, etc.), we’ll get better and better entry points in certain equity sector styles.

 

Our long-cycle call for #GrowthSlowing probably won’t die this morning either. “No Brexit” or not, it’s booked until at least Q3/Q4 when macro markets have fully priced it in.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.54-1.72%

SPX 2055-2095

NASDAQ 4

DAX 90

VIX 16.08-23.33
USD 93.18-95.25
EUR/USD 1.11-1.14

Gold 1

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

A New Exit! - 06.20.16 Chart


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