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WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH

This week's notable callouts include a new high in the TED spread and a sharp decline in the JOC commodity index. 


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Neutral / 3 of 11 improved / 3 out of 11 worsened / 5 of 11 unchanged
  • Intermediate-term (MoM): Positive / 2 of 11 improved / 6 of 11 worsened / 3 of 11 unchanged
  • Long-term (150 DMA): Neutral / 4 of 11 improved / 4 of 11 worsened / 3 of 11 unchanged

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - summary

 

1. US Financials CDS Monitor – Swaps widened across domestic financials, widening for 25 of the 28 reference entities and tightening for 3. 

Widened the most vs last week: GS, PMI, MBI

Tightened the most vs last week: MS, ACE, AON

Widened the most vs last month: JPM, PMI, MTG

Tightened the most vs last month: ACE, ALL, AGO

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe were mostly wider, widening for 31 of the 39 reference entities and tightening for 8.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - euro cd

 

3. European Sovereign CDS –  After taking a breather the prior week, European sovereign swaps increased late last week, rising 5 bps on average.  Greek CDS rose on speculation that Greece would leave the Eurozone.  Our Europe analyst, Matt Hedrick, commented in a piece on Friday, “It seems far more likely that these meetings are being called to discuss the back and forth over recent days about the prospect of Greece restructuring its debt, a position Greeks deny the need for, while select European voices continue to press.  Greece’s equity market (Athex) had a tough week, closing down 4.5% w/w as sovereign cds and government yields remain elevated, with the Greek 10yr yield at 15.5%. That said, we’re not seeing a freak-out in risk intraday that would confirm the validity of the likelihood that Greece leaves the union.  If anything, a serious talk about Greece’s public debt and the prospect for restructuring was probably in order, and the weekend will help shield some of the downside risk to the meeting’s announcement.”

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell last week, ending at 7.12 versus 7.66 the prior week. A data error or methodology change appears to be the cause of the step function in the Bloomberg series.  We are awaiting clarification on this shift.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index remained flat last week at 1621. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - leveraged loan

 

6. TED Spread Monitor – The TED spread rose last week to a new YTD high, ending the week at 26.2 versus 23.8 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - ted

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index dove with the rest of the commodity market, ending the week at 21.0, 7.3 points lower than the prior week.  This fall brings the JOC to its year-to-date low.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 15 bps versus the prior Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1.  Last week spreads fell to 99 from 112.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - mcds

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Early in the year, Australian floods and oversupply pressured the Index, driving it down 30% before bouncing off the lows.  Last week it rose 71 points to 1340.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - bdi

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened 8 bps to 260 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  2.3% upside to TRADE resistance, 0.6% downside to TRADE support.

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD HITS A NEW YTD HIGH  - xlf

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: MGM IPO; MIN WAGE BILL; GALAXY-MOODY'S-S&P

The Macau Metro Monitor, May 9, 2011

 


MGM CHINA NOW SEEKING TO RAISE UP TO US$1.5 BLN IN HK IPO-SOURCE WSJ, Apple Daily

MGM wants to raise between US$1BN to $1.5BN for its HK IPO, which is 3x what it had sought in a 2010 listing.  MGM China has begun pre-marketing for the deal and aims to launch its roadshow on May 17 and start its Hong Kong retail offering on May 23, the person said. The person added the company aims to list on the Hong Kong stock exchange on June 3.

 

Meanwhile, Hong Kong’s Apple Daily newspaper reports that the size of the offering is likely to be cut by 20% to US$800 million because of uncertain market conditions. The newspaper cites market sources.

GOVERNMENT PRESENTS BILL TO INCREASE MINIMUM AGE TO ENTER CASINOS macaubusiness.com, Intelligence Macau

There is a new Macau bill that will increase the minimum age for entering casinos from 18 to 21 years.  If someone under 21 years old wins a prize inside a casino, the bill states the money should be forfeit to the government.  The proposed age limit will cover both players and casino workers. However, those employees aged less than 21 years when the bill is enacted will be exempted.

 

IM believes this bill should be taken seriously as it will be another labor restriction, but Wynn Macau will be the least affected. 

 

GALAXY ENTERTAINMENT GROUP CLARIFICATION STATEMENT ON RATING AGENCY RELATIONSHIPS Galaxy Entertainment Group

Galaxy Casino has not renewed its engagements with Moody’s Investors Service and Standard & Poor’s corporate ratings services after the early redemption of its 2010 and 2012 bonds.  Galaxy clarified that it, not Moody's, initiated this termination.  Galaxy Macau remains on schedule and on budget to open on May 15, 2011.


IHG YOUTUBE

In preparation for IHG’s Q1 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from IHG’s Q4 earnings call.

 


Q1 YOUTUBE

  • “Although our visibility remains limited ... our demand trends do look very good and our momentum is strong.”
  • “In terms of system size, we expect growth to remain modest this year as the last tranche of exits related to the Holiday Inn re-launch directly are managed out of the system. In future years, the level of removals should revert to historic norms. And that should allow us to produce annual net system size growth of between 3% and 5% over the medium term.”
  • “For 2011, we expect the effective tax rate to be in the high 20%s. And going forward, the rate will move toward the low to mid 30%s.”
  • “Based on our expectations of the net system size movement in the Americas franchise business due to these exits, we expect a decrease in royalty fees in the region of $15 million in 2011.”
  • “Looking at 2011, our continued focus on costs and efficiencies mean that, based on the current trading outlook and at constant currency, our expectation for regional and central costs is between $250 million and $260 million as planned incentive payments return to a more normal level.”
  • “In 2011, we are starting a number of technology enhancements, which means that we do expect maintenance capital expenditures to go back above depreciation and to be in the region of $150 million.”
  • “We now have... an 18% share of the global industry pipeline. That compares to a 3% share of the total open hotel system and an 8% share of the total open branded system. And within that pipeline we have the top three brands, Holiday Inn, Holiday Inn Express and Crowne Plaza.”
  • “On Barclay, we’ve obviously been working on preparing for the sale for a little while. So we’re clearly looking to sell, just to be clear, keeping flag and management on the hotel. We’re also going to be selling it with a requirement to refurbish the property as well. So we actually have a refurbishment plan. We’re talking in the order of $100 million refurbishment plan to really bring the hotel back to where it needs to be and to compete effectively or complement effectively the new InterContinental we’ve got in Times Square….So we’ll probably be looking second half of the year.”
  • “I think we’re seeing finally some thawing in the lending markets in Northern Europe where they’ve been very difficult for a period.”
  • “And if you look at the January numbers, we’re up again. And North America trends are looking very good in that area.”
  • “So at the moment we’re thinking maybe inflation up to mid-single digits is where we’re going to finish, although we’re only three-quarters of the way through that process.”
  • [1% REVPAR sensitivity on EBITDA] “Yes. 1%, $13 million still holds. That’s a full-year number. Obviously it slightly depends where the RevPAR growth comes through, but we think that holds for 2011. So we haven’t changed that.”
  • “HPT. We continue to have discussions with them. The guarantee will burn out this quarter one and we’re into deposit. So good-natured discussions, but ultimately we’re earning no income from that portfolio and we need to earn some income from it. So we’ll see where we get to, but we’re continuing to talk to them.”
  • "We’re seeing no slowdown in deal pace in China at the moment.”
  • “I think what we’re seeing...is that the Holiday Inn Express, and the Holiday Inn core brand are now starting to hit their stride, the markets stabilizing around price points... One of the interesting features, though, is how well Holiday Inn is doing. It’s getting very competitive now. For a time, the differential between Holiday Inn Express and Holiday Inn was actually in the opposite direction that you might have expected, and Holiday Inn Express was quite often outperforming Holiday Inn. We’re beginning to see that now move in a different direction as the Holiday Inn with food and beverage product starts to – the quality of that estate now starts to come through.”
  • “I think the long-term intention is to move the Holiday Inn brand premium up. We’re already about 10 points better than the segment’s average on average. And we would like to start to close some of the gap on the upscale brands that are above it, and we see no reason now with the quality of the estate, and the brand imagery that we’ve got out there that over time, and as people get used to the new product, we can’t actually start to close the gap on some of its more upscale competitors.”
  • “We have 25 hotels in Shanghai at the moment; that will be going up to 40, 42... Even though we are well-dispersed through the secondary and tertiary markets, we still have leading positions in the major cities in China. There is quite a large discrepancy between the highest RevPARs based on Holiday Inn or a Crowne Plaza, and the lowest, it’s probably about 50% at the low end for the regions. We anticipate that will change over time and will start to close down, bu it’ll be quite some time yet before that happens.”
  • “We have a broader distribution across America than perhaps some of our competitors, given the heartland states of our midscale estate. But at the moment, we are still seeing the big driver of our business in the States coming out of the big centers. But I’d have to investigate it a bit further to see if we’re actually getting anything in that’s happening in the Midwest, particularly that’s changing the results. But as you say, we are definitely seeing the engine pick up speed, and our January numbers were stronger again than Q4, which was stronger again than the overall for the year. So, we’re definitely picking up pace.”

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TALES OF THE TAPE: MCD, DPZ, GMCR, THI, DIN, BAGL, KONA, PFCB

Notable news items and price action from the past twenty-fours along with our fundamental view on select names.

  • MCD Global sales results were released this morning.  Global comps came in at +6%.  U.S. comps gained 4% while Europe and APMEA both produced comps of +6.5%.  The results were impacted by a calendar shift that impacted results by between 0.9% and 1.0%, depending on the area of the world.
  • MCD Japan sales results revealed that April comps came in +3.6% year-over-year.  24 of the 264 doors closed due to the March earthquake/tsunami disaster.
  • DPZ gained 3.7% on accelerating volume. GMCR, THI, and DIN were other gainers that traded with high volume Friday.
  • BAGL, KONA, and PFCB all declined on accelerating volume Friday.

TALES OF THE TAPE: MCD, DPZ, GMCR, THI, DIN, BAGL, KONA, PFCB - stocks 59

 

 

Howard Penney

Managing Director


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - May 9, 2011

 

Plenty of talk this morning about what’s not new news to European bond/equity/FX market prices: (1) Greek Bond yields have been pricing in restructuring/default for 6 weeks (10s at 15.65% this morn) and (2) Greek Stocks (ATG Index) have been crashing since FEB (down -0.87% this morn; down -20.8% since February 18th).  As we look at today’s set up for the S&P 500, the range is 18 points or -0.54% downside to 1333 and 0.81% upside to 1351.

 

SECTOR AND GLOBAL PERFORMANCE

 

The Hedgeye models now have 6 of 9 S&P Sectors bullish TRADE and 7 of 9 bearish TREND.  The XLE and XLF are broken on both durations.

 

THE HEDGEYE DAILY OUTLOOK - levels 59

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: +993 (+1731)  
  • VOLUME: NYSE 1026.81 (-7.78%)
  • VIX:  18.20 +6.56% YTD PERFORMANCE: +2.54%
  • SPX PUT/CALL RATIO: 1.85 from 1.94 (-4.41%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 26.19
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 3.19 from 3.18
  • YIELD CURVE: 2.62 from 2.60 

 

MACRO DATA POINTS:

  • 11:30 a.m.: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 4 p.m.: Crop progress (winter wheat, cotton, corn, soybean)

WHAT TO WATCH:

  • Hertz makes hostile cash & stock bid for Dollar Thrifty, offering $72-shr; $57.60 in cash, 0.8546-shr equal to $14.40. Offer is 3.3% premium over DTG’s Friday close $69.69.
  • Greece wants reduced interest rate on the aid it received from the IMF and the EU -- Reuters
  • Marriott increases quarterly dividend by 14.3% to $0.10 from $0.0875; increases stock repurchase program by 25M shares

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Commodities Rebound From Worst Week Since 2008 as Crude Oil, Silver Climb
  • Crude in New York Rebounds to $100 After Biggest Weekly Decline Since 2008
  • Copper Climbs on Speculation Biggest Weekly Drop Since March Was Overdone
  • Wheat, Soybeans Gain Second Day as Commodities Slump, Weather Lure Buyers
  • Silver Futures Rally From Worst Weekly Loss Since 1975 as Investors Return
  • Sugar Rises as Brazil Production May Miss Estimates; Coffee Prices Climb
  • Palm Oil Climbs First Time in Four Days as Commodities Rebound from Slump
  • Coal Prices Rise for Sixth Week to Two-Year High in China as Demand Surges
  • Mississippi to Crest Tomorrow in Memphis as Floods Expected to Move South

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • Eurozone May Sentix Index 10.9 vs consensus 12.0
  • UK Halifax Apr House price index (3.7%) y/y vs consensus (2.9%)
  • The periphery is dragging down the region on newspaper reports that Greece wants reduced interest rate on the aid it received from the IMF/EU

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIAN MARKETS

  • Most Asian markets rose today on the back of positive US employment data.

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director



Daily Trading Ranges

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