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This Classic #LateCycle Indicator Is Flashing Red Around The Globe

Takeaway: The 10s/2s yield spread is a classic #LateCycle economic indicator that's been signaling global #GrowthSlowing for some time now.

This Classic #LateCycle Indicator Is Flashing Red Around The Globe - traffic light red

 

It's simple. Around the world the sovereign bond 10s/2s yield spread is screaming global #GrowthSlowingWhile central planners plug their ears, here are four charts of the yields spread, and their year-to-date compression, from the U.K., U.S., Germany and Japan that plainly illustrate the dour economic outlook.

1. U.K.

This Classic #LateCycle Indicator Is Flashing Red Around The Globe - uk 10s2s

2. U.S.

This Classic #LateCycle Indicator Is Flashing Red Around The Globe - us 10s2s

3. Germany

This Classic #LateCycle Indicator Is Flashing Red Around The Globe - germany 10s2s

4. Japan

This Classic #LateCycle Indicator Is Flashing Red Around The Globe - japan 10s2s

It's not rocket science.

 

We're just measuring and mapping the cycle and the vast majority of economic indicators are flashing red.


Australia’s Housing Bubble Is A Massive Powder Keg

In this brief excerpt from The Macro Show, Hedgeye Financials analyst Josh Steiner discusses some disconcerting new developments related to Australia’s housing bubble. 

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.


Capital One: Beware The Siren Song

Takeaway: "You’d have to go back to July '07 for the last time delinquency rates had risen by 30bps y-o-y. And we know where the world stood then."

Capital One: Beware The Siren Song - denial cartoon 09.28.2015

 

In this excerpt from The Macro Show earlier today, Hedgeye Financials analyst Josh Steiner dissects the credit cycle and specifically the detereorating data points embedded in credit card lender Capital One's business.

 

"Capital One is the largest U.S. subprime lender out there. Subprime lending, defined by the credit card lending industry as FICO sub-660, makes up roughly a third of their book. This chart [see below] shows the year-over-year rate of change in delinquencies in their U.S. credit card business.

 

Click image to enlarge

Capital One: Beware The Siren Song - capital one

 

As you can see, as of the latest data, delinquencies are up 35 bps year-over-year and its actually been accelerating now, really for the better part of the last year. In fact, as you go back a bit further, it bottomed out in early 2015 and, for the better part of the last 18 months, was getting less good but is now decidedly deteriorating.

 

Just to give you a bit of a time reference point, you’d have to go back to July of 2007 for the last time that delinquency rates had risen by 30bps year-over-year. And we know where the world stood in July of 2007.

 

So its not just that the market is at a toppy valuation, which it is. You’ve also got de facto indications that credit quality is deteriorating from Capital One, the largest US subprime lender in the country. Again, beware the siren song. I would not be chasing the market up here."


Early Look

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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.

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About Everything | Augmented Reality: Better Than Virtual?

About Everything | Augmented Reality: Better Than Virtual? - pokemon go

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the media hype surrounding virtual reality versus "the next big thing [that] may already be sitting in your pocket: augmented reality." Howe breaks down the key takeaways and explains the broader implications for investors.


MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM

Takeaway: Without much news out, markets broadly followed oil prices higher, as OPEC announced it will hold an informal meeting in September.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM11

 

Key Takeaway:

Without much news out last week, markets broadly followed oil prices higher, as OPEC announced it will hold an informal meeting in September. CDS tightened globally, the high yield YTM fell by -16 bps to 6.33%, and the price of Chinese steel rose 1.5%.

 

Our heatmap below is positive across all durations.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 5 of 13 improved / 2 out of 13 worsened / 6 of 13 unchanged
• Intermediate-term(WoW): Positive / 5 of 13 improved / 2 out of 13 worsened / 6 of 13 unchanged
• Long-term(WoW): Positive / 4 of 13 improved / 1 out of 13 worsened / 8 of 13 unchanged

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM15


1. U.S. Financial CDS
– Swaps tightened for 11 out of 13 domestic financial institutions as investors defaulted to optimism without much news last week but with oil prices pushing higher.

Tightened the most WoW: BAC, C, AXP
Widened the most WoW: HIG, COF, UNM
Widened the least/ tightened the most WoW: LNC, COF, UNM
Widened the most MoM: AIG, JPM, GS

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM1

 

2. European Financial CDS – Financials swaps mostly tightened in Europe last week. Portugal, however, was an outlier. CDS for its Banco Espirito Santo widened by 98 bps to 1188.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM2

 

3. Asian Financial CDS – Financials swaps mostly tightened in Asia last week. Only Nomura Holdings CDS widened minimally, by 1 bps to 80.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. However, Italian sovereign CDS widened by 6 bps to 132.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM18

 

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Russian sovereign swaps, however, stood out with a move 13 bps wider to 231.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM16

6. High Yield (YTM) Monitor – High Yield rates fell 16 bps last week, ending the week at 6.33% versus 6.49% the prior week.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 4.0 points last week, ending at 1938.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM6

8. TED Spread Monitor  – The TED spread rose 1 bps last week, ending the week at 54 bps this week versus last week’s print of 53 bps.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM7

9. CRB Commodity Price Index – The CRB index rose 1.6%, ending the week at 183 versus 180 the prior week. As compared with the prior month, commodity prices have decreased -3.3%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - 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 5 bps.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 2 basis points last week, ending the week at 2.02% 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 | DEFAULTING TO OPTIMISM - RM10

12. Chinese Steel – Steel prices in China rose 1.5% last week, or 39 yuan/ton, to 2617 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 | DEFAULTING TO OPTIMISM - RM12

13. Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,437 billion Yuan as of June 30, 2016, which is up +31.6% 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 | DEFAULTING TO OPTIMISM - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 151.4 trillion RMB as of July 31, 2016 (data released 8/12/2016), which is up +15.0 trillion RMB or +11.0% year over year. Month-over-month, credit is up +374 billion RMB or +0.2%. Note: this data is only updated monthly.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - RM20

15. 2-10 Spread – Last week the 2-10 spread tightened to 81 bps, -6 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | DEFAULTING TO OPTIMISM - 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 | DEFAULTING TO OPTIMISM - 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 15

 

Daily Market Data Dump: Monday - sector performance 8 15

 

Daily Market Data Dump: Monday - volume 8 15

 

Daily Market Data Dump: Monday - rates and spreads 8 15

 

Daily Market Data Dump: Monday - currencies 8 15

 

Daily Market Data Dump: Monday - commodities 8 15


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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