• run with the bulls

    get your first month


    of hedgeye free

prev

6 Charts: Begging For Bailouts Hits An All-Time High

6 Charts: Begging For Bailouts Hits An All-Time High - Bear crossing cartoon 09.29.2015 

 

Bailouts and central market planning galore.

 

That's the macro morning update today.

 

On Friday, Italy's oldest bank, Monte dei Paschi, announced it had found a "definitive solution" for solving its legacy of bad loans, which would raise €5 billion from private investors and sell €9.2 billion of bad debts. Shortly thereafter it was announced that Italy's third largest bank had failed EU stress tests. If the global economy and financial markets came under pressure, Monte dei Paschi's financial position would be wiped out.

 

European markets did not respond kindly to the news, with equity markets down between -0.4% and -1.2% today.

Italy

 

Germany

 

Meanwhile, in Asia...

 

Central-market planning isn't working out so well. Nevertheless, the begging for bailouts continues. Despite rumors that the BOJ could ultimately end up pursuing helicopter money, the Nikkei is up a whopping 0.4% overnight, bringing its year-to-date performance to -12.6%.

 

6 Charts: Begging For Bailouts Hits An All-Time High - nikkei 8 1

Over in China

 

The politburo is trying to manufacture a soft landing for its slowing economy but hasn't been able to prevent carnage in the Chinese stock market. The crash continues...

 

Commodities?

 

Oil is down -16% in the past month, as reflation continues to deflate. 

 

Bull Markets?

 

Gold, on the other hand, continues its rally as blind faith in central bankers continues to wane. That's long been our case for holding gold and it is gaining increasing credence among investors as money managers like DoubleLine Capital CEO Jeffrey Gundlach say "sell everything," buy gold.

 

 

The other bull market worth watching, which has also been our favorite Macro position for some time now, is Long Bonds (TLT). On that front, the year-to-date scorecard is as follows:

 

  • TLT: +16%

  • S&P 500: +6%

 

Bottom Line...

 

Central market planners have been doing their damndest to mask their country's underlying economic issues but when reality sets in the resulting carnage is often sharp and painful. 


MONDAY MORNING RISK MONITOR | TED SPREAD

Takeaway: Friday's disappointing U.S. GDP reading broke the streak of optimistic risk readings.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM11

 

Key Takeaway:

Friday's disappointing U.S. GDP reading broke the streak of optimistic risk readings; U.S. financials CDS widened by 5 bps to 81, the high yield YTM rose by 14 bps to 6.54%, and the usually stable TED spread (a measure of bank counterparty) spiked by 10 bps to 50. Interestingly, the TED Spread just hit a 4-year high - the last time it was north of 50 bps was January, 2012. Additionally, in Europe, financials CDS widened by 5 bps to 123 as mostly positive results from banking stress tests were not enough to ease investor worry.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM19

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 3 of 13 improved / 5 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Positive / 9 of 13 improved / 1 out of 13 worsened / 3 of 13 unchanged

 • Long-term(WoW): Positive / 3 of 13 improved / 1 out of 13 worsened / 9 of 13 unchanged

 

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM15 2


1. U.S. Financial CDS
– Swaps widened for 12 out of 13 domestic financial institutions. With Friday's disappointing read on GDP, which grew only 1.2% in Q2, the median U.S. financials swaps widened by 5 bps to 81.

Widened the least/ tightened the most WoW: COF, GNW, ACE
Widened the most WoW: AIG, JPM, BAC
Tightened the most WoW: HIG, BAC, C
Widened the most MoM: MTG, AON, CB

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM1

 

2. European Financial CDS – Financials swaps were mixed in Europe last week. While the European Banking Authority cleared most banks after evaluating their stress tests, Italian UniCredit, British Barclays and German Deutsche Bank suffered hits to their capital buffers, pushing CDS for Barclays and Deutsche wider by 3 bps to 115 and by 8 bps to 212, respectively. Interestingly, UniCredit CDS actually tightened by -2 bps to 173.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM2

 

3. Asian Financial CDS – In Japan, the BOJ's modest easing announcement was not enough to significantly move the country's financials CDS, although Sumitomo Mitsui swaps did stand out, tightening by -2 bps to 84; the central bank stated it will buy ¥6 trillion of ETFs annually but leave its key interest rate unchanged. Meanwhile, Chinese and Indian bank CDS mostly widened.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese swaps tightened the most, by -13 bps to 270.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM18

 

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Mexican sovereign swaps widened the most, by 12 bps to 152, followed by Russian swaps, which widened by 11 bps to 239.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM16

6. High Yield (YTM) Monitor – High Yield rates rose 14 bps last week, ending the week at 6.54% versus 6.40% the prior week.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index was unchanged last week, ending at 1932.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM6

8. TED Spread Monitor  – The TED spread rose 10 bps last week, ending the week at 50 bps this week versus last week’s print of 40 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM7

9. CRB Commodity Price Index – The CRB index fell -2.2%, ending the week at 181 versus 185 the prior week. As compared with the prior month, commodity prices have decreased -6.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | TED SPREAD  - 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 6 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index was unchanged last week, ending at 2.02%. 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 | TED SPREAD  - RM10

12. Chinese Steel – Steel prices in China rose 1.2% last week, or 29 yuan/ton, to 2550 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 | TED SPREAD  - 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 | TED SPREAD  - 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 | TED SPREAD  - RM20

15. 2-10 Spread – Last week the 2-10 spread tightened to 80 bps, -7 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | TED SPREAD  - 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 2 bps to 40 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT



Patrick Staudt, CFA


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, 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: Monday - equity markets 8 1

 

Daily Market Data Dump: Monday - sector performance 8 1

 

Daily Market Data Dump: Monday - volume 8 1

 

Daily Market Data Dump: Monday - rates and spreads 8 1

 

Daily Market Data Dump: Monday - currencies 8 1

 

Daily Market Data Dump: Monday - commodities 8 1


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.

EVENT | Flowers Foods (FLO) Black Book

Tuesday, August 9th at 11:00AM ET

Watch a replay below. 

CLICK HERE to access an audio-only replay.

 

 

 


Still Crashing... Rolling The Dice In China's Shanghai Comp Casino

Takeaway: China's Shanghai Comp is down another -0.9% overnight after dropping -1.1% last week, taking its crash to -43% from its 2015 high.

I'm having a hard time seeing a “bottom” in any non-made-up time series. After falling another -1.1% last week, Shanghai Comp loses another -0.9% overnight (taking its crash to -43% since June 2015) as the Yuan continues to hit new lows.

 

 

Still Crashing... Rolling The Dice In China's Shanghai Comp Casino - China crash cartoon 08.25.2015 

 

Editor's Note: The snippet above is from a note Hedgeye CEO Keith McCullough wrote for subscribers this morning. Click here to learn more.


Big July for High Beta, Tech, etc.; bad July for “Reflation”, Oil...

Client Talking Points

China

Having a hard time seeing a “bottom” in any non-made-up time series; after falling another -1.1% last wk, Shanghai Comp loses another -0.9% overnight (taking its crash to -43% since JUN 2015) as the Yuan continues to hit new lows.

Oil

So if China hasn’t bottomed, Oil must be still bottoming, right? Not this morning – down another -1% to $41.20 WTI after a -16% JUL; everything is cool when levering up to pay dividends, until it isn’t … Oil remains bearish TREND @Hedgeye.

UST 10YR

Did what it should have done on the GDP miss (Consumption hit the number our tracker was anchoring on, but they told the #truth on the Deflator! and that subtracted 170bps); assuming 1-1.5% GDP was always the bull case for stocks and bonds (not really, but narratives come and go), consensus is now long both (see CFTC futz/options positioning report).

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/31/16 66% 4% 6% 6% 6% 12%
8/1/16 62% 3% 5% 6% 12% 12%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/31/16 66% 12% 18% 18% 18% 36%
8/1/16 62% 9% 15% 18% 36% 36%
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
GLD

To summarize our active ideas, long Gold (GLD) and long U.S. Dollar position (via PowerShares DB US Dollar Index Bullish Fund (UUP), netted out Friday, with gold catching a bid against a USD that got crushed on the report. (Part of the reason we added UUP to Investing Ideas was the expectation of a GDP print that may have sent a hawkish message to the market.) Think of Gold and the USD as a position against a basket of other currencies.

TLT

The good news for #GrowthSlowing bulls is that the Treasury rate curve will likely get pushed lower over the coming days as investors take stock of this week’s ugly data. That's good for Treasury Inflation-Protected Securities (TIP) and Long Bonds (TLT).

UUP

See update on GLD.

Three for the Road

TWEET OF THE DAY

VIDEO: This Overlooked US Housing Investigation Has Huge Investing Implications app.hedgeye.com/insights/52742

@KeithMcCullough

QUOTE OF THE DAY

”Me shooting 40% at the foul line is just God's way to say nobody's perfect”

-Shaquille O'Neal

STAT OF THE DAY

Brian McCann has 1359 career hits.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next