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Iran Nuclear Deal Emerging as a Potential Election Risk For Energy Markets

Takeaway: Trump pledges to undo the Iran nuclear deal. Reimposing US sanctions will put Iran's 750K b/d of new crude exports to world markets at risk.

Editor's Note: Below is a brief excerpt from an institutional research note written this morning by Hedgeye Potomac Senior Energy Policy Analyst Joe McMonigle. Joe is in Cleveland at the Republican National Convention. 

 

Iran Nuclear Deal Emerging as a Potential Election Risk For Energy Markets - z o9

 

As Republicans gather this week in Cleveland, there will be considerable talk about energy issues – support for hydraulic fracturing, coal, natural gas, LNG and overall US energy independence. While Donald Trump has not provided many specifics on his energy plans, there is a solid consensus that his administration would be favorable to fossil fuel energy sectors with very little downside risk for investors.

 

However, there is an emerging election risk to energy markets and that is Trump’s pledge to nullify the Iran nuclear deal.

 

It would be especially disruptive to oil markets as Iranian crude exports have regained significant market share in recent months.

 

The International Energy Agency (IEA) said last week that Iran’s crude production rose to 3.66 million barrels a day in June and 750,000 barrels a day since January when international nuclear sanctions were lifted.

 

Re-imposing US sanctions could put much of this new Iranian crude exports on the market at risk.

 

For more information on our institutional research email sales@hedgeye.com.


The Key Discussion Points Ahead Of Our Institutional Call on Wabtec | $WAB

The Key Discussion Points Ahead Of Our Institutional Call on Wabtec | $WAB - wab email

 

Editor's Note: Wabtec (WAB) is currently on our Industrials analyst Jay Van Sciver's Best Ideas List as a short. He is hosting a call today to update his thesis and preview their upcoming quarterly report. Send an email to sales@hedgeye.com for access or for additional information about our institutional research.

KEY DISCUSSION POINTS:

 

  • A Look At Freight Decremental Sustainability: WAB's report and guidance will test the sustainability of 1Q 2016's Freight segment decremental margin, which the 10-Q indicates was driven by lower Material costs. These favorable decremental margin expectations are now imbedded in 2H 2016 consensus estimates, and we expect the recent snap back in steel prices to have a significant 2H16 impact. While Materials costs went unmentioned in both the press release and earnings call, the company has apparently subsequently claimed mix as a factor; we do not find that claim credible. 
  • Consideration of Faiveley Deal Structure, Remedies: Investors should receive an update on the Faiveley acquisition, a deal we think management wanted to close by mid-year amid Freight segment pressure. Management has previously left no ambiguity that they expected to close the deal, but the information from regulators indicate to us that divestitures or other remedies will be required to close. Given the dearth of appropriate buyers for divested assets and not-so-minimal business overlap between WAB and LEY FP, comments should be interesting. The Faiveley merger remains a long thesis element for several large WAB holders.
  • Our Take On Management: We have observed thesis drift among WAB longs. While initially embracing freight aftermarket and regulation-driven demand, the focus shifted to international Transit growth and Faiveley. Now, discussions typically end with how this management team will execute through the downturn. If management is not able to deliver, further thesis drift may lack a new port.

 

What Levers Are Next? This management will not ride the downturn quietly, in our view. Wabtec still has substantial balance sheet capacity, and we would expect disappointing headlines to be offset with positive ones. Results last quarter should have seen pressure, but management was able to pull a Materials cost rabbit out of the hat. We will consider some options and the associated risks.

 

The Key Discussion Points Ahead Of Our Institutional Call on Wabtec | $WAB - wab call

 

**Email sales@hedgeye.com for access.


Earnings Season Update: The Soft Bigotry of Low Expectations

Takeaway: So far, 43 of 500 companies have reported an aggregate year-over-year EPS decline of -7.1%.

Earnings Season Update: The Soft Bigotry of Low Expectations - earnings q2

 

Everyone beats Wall Street's beaten down earnings expectations. But what really matters is the year-over-year change.

 

"So far, 43 of 500 companies have officially printed their GAAP and non-GAAP stories for an aggregate year-over-year EPS decline of -7.1%," Hedgeye CEO Keith McCullough wrote earlier today. "Financials EPS are currently -8.3% y/y and allegedly they all “beat”; I’d still sell them on bounces from here."


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Daily Market Data Dump: Tuesday

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, key currency crosses, and commodities. 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: Tuesday - equity markets 7 19

 

Daily Market Data Dump: Tuesday - sector performance 7 19

 

Daily Market Data Dump: Tuesday - volume 7 19

 

Daily Market Data Dump: Tuesday - rates and spreads 7 19

 

Daily Market Data Dump: Tuesday - currencies 7 19

 

Daily Market Data Dump: Tuesday - commodities 7 19


The Troubling Truth Behind The Rally To All-Time Highs

Takeaway: Volume continues to crash into the all-time closing SPY highs – yesterday’s Total US Equity Volume was down -20% versus its 1-month average.

The Troubling Truth Behind The Rally To All-Time Highs - volume cartoon

 

The no-volume rally to all-time highs in the S&P 500 is disconcerting to say the least. Why?

 

No Volume = No Conviction

 

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier today:

 

"Volume continues to crash into the all-time closing SPY highs – yesterday’s Total US Equity Volume (including dark pool) was down -20% and -24%, respectively versus its 1-month and 1-year averages; this cannot be bullish for active vs. passive flows (in June, active saw its biggest monthly outflow since Oct 2008)"

 


CHART OF THE DAY: Expensive, Like 1929

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.

 

"... Longer-term though, on something like P/E ratios, Shiller has been proven right. Today’s Chart of The Day is a picture Shiller emblazoned into my thick but impressionable skull in the 1990s. It reminded me that today’s US stock market “multiple” looks like it did in 1929 (you can find Shiller’s long-term mean reversion and behavioral research at www.econ.yale.edu/~shiller/)."

 

CHART OF THE DAY: Expensive, Like 1929 - 07.19.16 EL Chart


Early Look

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