European Bearish Data Roam

<revised with correct chart below>


Hedgeye Portfolio: Long Germany (EWG); Long British Pound (FXB); bullish on EUR-USD


Position: Eurozone, Germany and France Services and Manufacturing PMI numbers decline in September; UK housing loan data continues to wane; and risk heightens across the region, in particular vis-à-vis rising CDS spreads in Portugal and Ireland above the critical 400bp line (see charts below). Today’s data is in line with our call for a material downward inflection in fundamental European data across most of Europe beginning in August and continuing over the intermediate term TREND. 


We’re however not bearish on Europe outright. As we noted in a recent post titled “The EU’s Guiding Hand”, we’re currently bullish on Germany, with the DAX outperforming many of the equity markets of its Western European peers, and bullish on the GBP and EUR versus the USD on a relative basis, as we see substantial downside in the USD and YEN, in particular. Our bullish intermediate term TREND line for the DAX is 6089; our TREND lines for the Euro and Pound are $1.26 and $1.52, respectively.


Below is a short discussion of today’s charts:


1.  We expect Eurozone Services and Manufacturing PMI to continue to wane over the intermediate term TREND as austerity measures across the region squeeze the consumer and dampen the economic outlook out on the curve.


European Bearish Data Roam - h1


2.  The UK housing market remains a critical fundamental headwind (like in the US) that we think will continue to drag down growth prospects in the UK.  According to the British Bankers Association, loan approval for house purchase declined -7.2% M/M and fell -22.3% Y/Y.  Noteworthy is that year-over-year comps will get increasingly difficult up to a loan approval peak in Dec. ’09.


European Bearish Data Roam - h2


3.  As an important leading indicator, the risk trade in Portugal and Ireland is breaking out vis-à-vis CDS spreads, in particular.  As we noted in late ’09 and 1H10 in relation to Greece, and as history has shown in relations to the CDS spreads of Lehman Brothers and Bear Stearns, the 400bp line is a critical inflection line (Shark Line) to watch as the probably of upside risk heightens materially as you move through the line.


European Bearish Data Roam - h3


Matthew Hedrick

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more