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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, rates and bond spreads, and key currency crosses. 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 7 18

 

Daily Market Data Dump: Monday - sector performance 7 18

 

Daily Market Data Dump: Monday - volume 7 18

 

Daily Market Data Dump: Monday - rates and spreads 7 18

 

Daily Market Data Dump: Monday - currencies 7 18


WisdomTree (WETF) | Helicopter Helping...Brexit Hurting

Takeaway: Japanese trends are being "lifted" by rumors of Helicopter QE but Brexit is still pushing AUM out the door.

  • Trends have marginally improved in Japan with rumors of a new bout of QE and a potential last ditch effort to "Helicopter" credit to consumers and spur the moribund Japanese economy. With that speculation running through the market early last week, the firm's hedged Japanese product took in over +$400 MM in new AUM in the past 5 days, as the Yen sold off -5%. The respite to the consistent uptrend in the currency and the slough off in AUM is allowing the DXJ to put in its best running month in 9 months and has boosted the stock out of a consistent downtrend for now.
  • Europe is still a slippery slope with Brexit adding a layer of complexity to the already weak economic landscape with fears of an Italian banking crisis now being intermixed with the unknown of how the U.K. will divorce itself from existing agreements with the E.U. The firm's hedged European product lost over -$250 million alone on Friday, with the tally from Brexit over the past 15 trading days now at -$1.2 billion in AUM (outflows and depreciation).
  • The wiggle higher in DXJ AUM has helped the stock on a short term basis but we remain bearish on the concentration risk to the firm on these 2 products which total 45% of AUM (especially with the ongoing weakness and concern in Europe which is impacting HEDJ). Other fundamental issues include the consistent underperformance of the firm's smart beta products compared to local benchmarks and also that over a broader cycle that long currency exposure tends to stabilize returns for foreign investors and the currency hedges at DXJ and HEDJ have done nothing but nullify Euro and Yen gains all year. The stock still trades well over 30x earnings and will report quarterly results next Friday with a likely $0.06 per share earnings print. With an $0.08 quarterly dividend currently, management will need to either cost cuts, restrike the dividend policy, or grow out of the current weak trends in its main products. We see fair value at $5-$7 per share or ~20x a $0.28 estimate for 2017 (under a scenario where DXJ and HEDJ stabilize but the firm doesn't grow). Our bear case scenario is that the firm breaks even at $20 billion in AUM and the stock is worth $2 per share.

 

The rumors of a "Helicopter" bout of QE in Japan finally took the rally out of the Yen last week with the Japanese currency depreciating -5%. This helped DXJ AUM by over +$400 MM with the product working on its best month in 9. The downtrend in DXJ AUM is still substantially lower however:

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 1

 

The European hedged product is now discounting another unknown with Brexit fears running through the product the past 3 weeks. The HEDJ lost over $250 MM on Friday (July 15th) alone with the total tally on the fund's AUM at -$1.2 billion since the U.K. referendum to leave the E.U.

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 2

 

Both funds are highly responsive to the direction of their respective foreign currencies and the Yen's rally this year has been dramatic with a stubbornly high Euro also problematic for the firm's currency hedges:

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 3

 

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 4

 

One of our main contentions with the story is that outside of near term currency weakness (the past 3 years), that there are significant periods of time where long currency exposure significantly benefits foreign investors:

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 5

 

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 6

 

In addition, the firm's "smart beta" methodology or fundamentally indexing via dividend payouts has yet to prove that it can "outperform" established market cap weighted benchmarks:

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 7

 

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 8

 

Shares remain wildly expensive and still have very high embedded growth despite AUM in decline. The firm also has a capital management issue at hand, currently paying an $0.08 per share common dividend while currently at a $0.06-0.07 per share earnings run rate. WETF stock sits as a Best Idea Short with fair value at $5-7 (and a $2 valuation in a breakeven scenario).

 

WisdomTree (WETF) | Helicopter Helping...Brexit Hurting - Chart 9

 

WisdomTree (WETF) - Timber!

WisdomTree (WETF) - It's Different This Time

WisdomTree (WETF) - The Land of the Sinking Sun

WisdomTree (WETF) - The Kuroda Kicker

WisdomTree (WETF) - More Questions Than Answers - We Remain Short 

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

 Joshua Steiner, CFA

 

 

 

Patrick Staudt, CFA


MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME

Takeaway: The reality of slowing growth and a likely British recession gave way to elation over future BoE stimulus and positive U.S. and Chinese data

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM11

 

Key Takeaway:

Extreme optimism took hold last week, especially with Bank of England officials advising that they expect to launch fresh stimulus next month, J.P. Morgan and Citigroup beating earnings expectations, U.S. retail sales coming in higher than expected, and Chinese economic growth coming in higher than expected at 6.7%. Almost all of our risk measures in the heatmap below eased week over week, most of them significantly. The heatmap is also positive on the intermediate and long term.

Current Ideas:


MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 8 of 13 improved / 0 out of 13 worsened / 5 of 13 unchanged
• Intermediate-term(WoW): Positive / 9 of 13 improved / 0 out of 13 worsened / 4 of 13 unchanged
• Long-term(WoW): Positive / 3 of 13 improved / 2 out of 13 worsened / 8 of 13 unchanged

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM15


1. U.S. Financial CDS
– Swaps tightened for 13 out of 13 domestic financial institutions. With J.P. Morgan and Citigroup beating earnings expectations, retail sales coming in higher than expected, and Brexit fears giving way to elation over future BoE stimulus, the median domestic financials CDS tightened by -8 bps to 78.

Tightened the most WoW: AIG, MS, PRU
Widened the most WoW: ACE, CB, MTG
Tightened the most WoW: JPM, BAC, C
Widened the most MoM: AGO, ACE, SLM

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM1

 

2. European Financial CDS – Financials swaps mostly tightened in Europe last week as the reality of slowing growth and a likely British recession gave way to elation over future BoE stimulus.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM2

 

3. Asian Financial CDS – With relief provided by a weakening Yen and Chinese economic growth coming in higher than expected at 6.7%, all financials swaps in Asia tightened last week, with the exception of Japanese Mizuho CDS, which did not trade. 

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese swaps tightened the most, by -26 bps to 288.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM18

 

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps were propelled tightener last week by better-than-expected Chinese economic growth. The average CDS change was -13 bps.


MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM16

6. High Yield (YTM) Monitor – High Yield rates fell 24 bps last week, ending the week at 6.42% versus 6.66% the prior week.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 15.0 points last week, ending at 1925.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM6

8. TED Spread Monitor  – The TED spread fell 1 bps last week, ending the week at 38 bps this week versus last week’s print of 39 bps.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM7

9. CRB Commodity Price Index – The CRB index fell -0.6%, ending the week at 189 versus 190 the prior week. As compared with the prior month, commodity prices have decreased -1.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - 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 tightened by 2 bps to 5 bps.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell 0 basis points last week, ending the week at 2.00% 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 | OPTIMISM TO THE EXTREME - RM10

12. Chinese Steel – Steel prices in China rose 3.8% last week, or 95 yuan/ton, to 2610 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 | OPTIMISM TO THE EXTREME - 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 | OPTIMISM TO THE EXTREME - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 151.0 trillion RMB as of June 30, 2016 (data released 7/14/2016), which is up +15.3 trillion RMB or +11.3% year over year. Month-over-month, credit is up +1,514 billion RMB or +1.0%. Note: this data is only updated monthly.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM20

15. 2-10 Spread – Last week the 2-10 spread widened to 88 bps, 13 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - 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 tightened by 1 bps to 39 bps.

MONDAY MORNING RISK MONITOR | OPTIMISM TO THE EXTREME - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT



Patrick Staudt, CFA


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

QUICK TAKE: What's Ahead For Oil Prices

QUICK TAKE: What's Ahead For Oil Prices - oil cartoon 03.29.2016

 

Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"Stronger Dollar = weaker reflation returns… no follow through to Oil being +1.2% (WTI) last week as it’s still -5% in the last month and trading below @Hedgeye TREND resistance of $47.37/barrel."

 


An almost perfect week for US Equity Beta is looking to hold this morning...

Client Talking Points

US GDP

Post a sequentially accelerating nominal Retail Sales report on Friday (June +2.7% y/y), our predictive tracking algo for GDP has ramped to its highest level of 2015 at +2.3% y/y which could mean something as high as +3-4% the way Wall St looks at the headline (q/q SAAR) = 1st time our forecast has been above the Atlanta Fed and consensus.

UST 10TR

The #ProfitCycle recession TREND call is still in play, so it will be interesting to see GDP rising (sequentially, which can happen in any data series, especially if the Deflator is understated and real growth overstated) vs. Earnings Season as they’ll be going different ways; risk range on the 10yr has widened out to 1.31-1.61% and should.

Oil

Stronger than recession in GDP data = stronger Dollar = weaker reflation returns… no follow through to Oil being +1.2% (WTI) last week as it’s still -5% in the last month and trading below @Hedgeye TREND resistance of $47.37/barrel.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/17/16 51% 0% 0% 13% 30% 6%
7/18/16 50% 0% 0% 13% 30% 7%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/17/16 51% 0% 0% 39% 91% 18%
7/18/16 50% 0% 0% 39% 91% 21%
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

Long Bonds (TLT) = #GrowthSlowing, yield curve compression 

GLD

Gold (GLD) = Protection from global currency devaluation and inflation/down USD – You can travel anywhere on earth and get a quote in local currency 

TIP

Treasury Inflation-Protected Securities (TIP) = Combination of the above exposures 

Three for the Road

TWEET OF THE DAY

Dogmatic faith in central banking magic is dying a slow death. #Fed #ECB #BoJ #markets #FX @KeithMcCullough pic.twitter.com/EqxE04s6oT

@Hedgeye

QUOTE OF THE DAY

“Freedom lies in being bold.“

-Robert Frost

STAT OF THE DAY

Arod has a career batting average of .295.


CHART OF THE DAY: A Closer Look At Retail Sales

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. 

 

"... A few points on why we’ve been revising GDP higher throughout the quarter:

  1. The government has been understating “inflation” in both GDP and PCE Consumption reports
  2. When you understate inflation, you can overstate “real” consumption and GDP growth

A real-world example of this is Retail Sales. Because it’s reported nominally, lower gas prices actually drag on reported growth while higher prices – despite acting as a tax on real consumption – actually manifest as stronger reported growth."

 

CHART OF THE DAY: A Closer Look At Retail Sales - 07.18.16 EL Chart


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