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Buying European Banks? Good Luck With That

Editor's Note: Hedgeye Financials analyst Jonathan Casteleyn was on The Macro Show this morning discussing Brexit, European equities and a number of his high-conviction long and short calls. Below is an abridged transcript from today's episode in which Casteleyn explains why investors in European equities should "avoid the whole region."

 

Buying European Banks? Good Luck With That - europe geography

 

“This is what I think we should be talking about in Europe. The region is actually really unappealing as you can see in this time series of European bank stocks [see below].

 

Out of the 2008-2009 Financial Crisis, you saw a slight rebound in the banking sector but there’s been no recovery. Rates are down, growth is down, deflation is moving into the economy and there’s been no rebound in financial company profits. Essentially, the banks are dis-incentivized to make loans because they can’t do it profitably.

 

Buying European Banks? Good Luck With That - european stocks 6 20

 

Remember, this chart has nothing to do with Brexit and is proof that the financial sector is not a place to invest. Since credit is the lifeblood of the economy, the pull forward of consumption, Europe is in massive distress.

 

We just want to avoid the whole region.”


[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition

Takeaway: Total equity products are averaging a weekly redemption of -$3.4 billion versus fixed income which is bringing in +$3.9 billion per week.

Editor's Note: Below is a complimentary research note originally published June 16, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

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Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending June 8th, Large Cap and Emerging Markets were the only active equity categories to have net contributions. Large Cap took in meager +$346 million and Emerging Markets gained +$130 million, however losses in the other categories brought total equity mutual fund flows to -$3.8 billion. Meanwhile, active fixed income flows came in strongly at +$5.0 billion. Global bonds, with a -$755 million outflow, was the only fixed income category to experience a net withdrawal. In passive ETFs, bond inflows of +$2.9 billion slightly outpaced equity ETF contributions of +$2.3 billion. The year-to-date scorecard is telling with total equity products (including ETFs) shedding -$3.4 billion versus all fixed income product which is averaging +3.9 billion in subscriptions (lead by tax-free munis with a +1.2 billion weekly average inflow).

 


[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI1

 

In the most recent 5-day period ending June 8th, total equity mutual funds put up net outflows of -$3.8 billion, trailing the year-to-date weekly average outflow of -$2.5 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$5.0 billion, outpacing the year-to-date weekly average inflow of +$2.5 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$2.3 billion, outpacing the year-to-date weekly average outflow of -$895 million but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.9 billion, outpacing the year-to-date weekly average inflow of +$1.5 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI2

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI3

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI4

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI5

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI12

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI13

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI14

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI15

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI7

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$537 million or +4% to the health care XLV ETF and +$331 million or +4% to the long treasury TLT ETF.

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI17

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$9.4 billion spread for the week (-$1.5 billion of total equity outflow net of the +$7.9 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$2.4 billion (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI10 2

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

[UNLOCKED] Fund Flow Survey | Hallmarks of a Phase Transition - ICI11 


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

 

CLICK TO ENLARGE

 

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


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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.


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


REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.

 

Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)

 

Enjoy!   

 

1. McGough: 8 Retail Stocks With Credit Cycle Risk (6/17/2016)

 

 

In this excerpt from The Macro Show earlier today, Hedgeye Retail analyst Brian McGough explains why certain retailers are overexposed to a rollover in the credit cycle.

 

2. REPLAY: Healthcare Q&A with Tom Tobin | $AHS $HCA $HOLX $MD $ZBH (6/16/2016)

 

 

Our Healthcare analysts Tom Tobin and Andrew Freedman hosted a live Q&A earlier today to discuss their top ideas and the latest trends in the Healthcare space.

 

Topics include:

  • Employment, JOLTS and #ACATaper Update related to AHS, HCA, HOLX, MD and ZBH
  • ATHN Tracker Update and Latest Thoughts

Click here to access the associated slides. 

 

3. About Everything | Q&A with Neil Howe & Tom Tobin: Demographic Warning Shots Fired In America (6/16/2016)

 

 

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe explores the troubling rise in the U.S. mortality rate that's coincided with declining fertility rates. Howe walks through the myriad demographic and social trends which have conspired to cause this development.

 

Click here to read Howe’s associated About Everything piece.

 

Click here to access the associated slides.

 

4. Drake: Why The Central Planning #BeliefSystem Is Breaking Down (6/16/2016)

 

 

In this excerpt from The Macro Show, Hedgeye Senior Macro analyst Christian Drake gives subscribers a brief tutorial on one of our top three Macro Themes.

 

5. McCullough: My Response To Today’s Fed Statement (6/15/2016)

 

 

In this special HedgeyeTV presentation, Hedgeye CEO Keith McCullough explains why “the Fed is not trying to protect the American people and their cost of living. It wants to keep the financial market bubbles that they created intact.” 

 

6. Credit Cycle: The Beginning Of The End? (6/15/2016)

 

 

In this excerpt from The Macro Show this morning, Hedgeye Financials analyst Josh Steiner joins CEO Keith McCullough to discuss why the #CreditCycle is just beginning to wreak havoc on financial markets. Steiner cites the recent blowup in Synchrony Financial (SYF) as a prime example.

 

7. Drake: Keep An Eye On (Decelerating) Income Growth (6/14/2016)

 

 

In this excerpt from The Macro Show earlier today, Hedgeye U.S. Macro analyst Christian Drake explains why income growth continues to slow and what it means for the U.S. economy.

 

8. The Clock Is Ticking: Will Trump Bring The GOP Together? (6/14/2016)

 

 

Much is being made of Donald Trump’s inability to unite Republicans at this stage of the campaign. Hedgeye Potomac Chief Political Strategist JT Taylor takes a look and offers some key thoughts on the subject, as well how Hillary Clinton stacks up on the Democratic side.


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