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MACAU UPDATE

No change to June revenue forecast of HK$19.5-20.5BN

 

 

Last week, Macau slowed down a tad with average daily gaming revenues decreasing to HK$664MM per day from HK$705MM per day the prior week.  This is still in-line with the 3-week average daily gaming revenues.   Our June GGR forecast of HK$19.5-20.5BN (+50% YoY) remains unchanged. 

 

Market share continues to be volatile as Galaxy Macau and MGM were the biggest losers last week compared with the previous week, while LVS and WYNN gained the most share.  Galaxy Macau’s big weekly drop was likely due to soft VIP volumes.  We’re also hearing StarWorld appears to be maintaining most, if not all, of its previous volumes.  MPEL also gained share last week as CoD continues to do well despite Galaxy Macau next door.

 

MACAU UPDATE - macau update


TALES OF THE TAPE: CMG, MCD, WEN, THI, DRI, EAT

Notable news items and price action from the restaurant space as well as our fundamental view on select names.

 

 

MACRO

 

The health of the consumer is a key question right now as chains pass on price in an effort to protect margins due to elevated input costs.  Chipotle is the latest concept to make headlines for raising prices (see below).  Of course, unless commodities prices decline, we can expect price increases across the industry. 

 

Food costs have declined somewhat but, as the chart below indicates, the CRB Foodstuffs Index remains far above historical norms.  

 

TALES OF THE TAPE: CMG, MCD, WEN, THI, DRI, EAT - crb foodstuffs

 

 

QSR

  • CMG is raising prices regionally after saying on its February 20th earnings call that no price increase would be considered until the third quarter. A few days shy of the third quarter rolling around, the company has decided that it will raise menu prices in the Northeast and Southeast over the next few weeks with changes in other markets to follow.  According to The Wall Street Journal, NYC Chipotle restaurants increased prices by 50 cents last week, but lines were still “out the door”.
  • MCD has expanded its smoothie line with a mango pineapple flavor as it looks to emulate its success of 2010 in selling beverages.
  • MCD earned the title of “Most Effective Brand” in the inaugural Effie Effectiveness Index, which ranks brands by measuring the results of 40 worldwide marketing and advertising competitions.
  • WEN Chief Operating Officer, Andrew Skehan, was surprised to learn of the scantily clad models hired to greet reports at the first Wendy’s restaurant in Russia last week.  The Russian initiative was somewhat of a departure from the wholesome, pig-tailed, red-haired icon usually used to promote Wendy’s.
  • THI was restated “Buy” at BofA with a price target of C$55.

 

CASUAL DINING

  • EAT was mentioned on a list of potential M&A candidates by UBS.
  • DRI will report a solid 4QFY11 on June 30th, according to JPM, based on recent industry sales trends and company-specific cost savings. 

TALES OF THE TAPE: CMG, MCD, WEN, THI, DRI, EAT - stocks 627

 

 

Howard Penney

Managing Director


THE M3: SLOTS; UNEMPLOYMENT; IMPORTED WORKERS; GAMING TAXES

The Macau Metro Monitor, June 27, 2011

 


MACAU'S GAMING REGULATOR ADVISES CASINOS TO DROP ULTRA-LOW DENOMINATION SLOT GAMES IAG

Several of Macau’s gaming concessionaires have been advised by the Gaming Inspection and Coordination Bureau (DICJ) that slot games with denominations of less than 10HK cents per line are non-compliant and raises problem gambling issues.  IAG says the regulator has not gone as far as to issue a formal directive to ban the 2HK cent and 5HK cent games, but is currently issuing informal guidance that it would like to see their use discontinued. 

 

Several industry sources say currently, a small number of slot players using high denomination machines are providing the majority of the revenues, thus suggesting that the revenue implications of banning ultra-low denomination machines may be minimal.

 

EMPLOYMENT SURVEY FOR MARCH-MAY 2011 DSEC

Unemployment rate for the March-May 2011 period was 2.6%, down 0.1% point from Feb-April period and the lowest since the Handover of Macau to China.  DSEC said this was due to opening of Galaxy Macau.  Total labor force was 337,000 in March-May 2011 and the labor force participation rate stood at 71.6%, up by 0.4% point from the Feb-April period.

 

IMPORTED WORKERS ON THE RISE Macau Business

In May 2011, the number of non-resident workers in Macau reached 84,000, +1.6% MoM.

 

BUDGET SURPLUS RECORDS NEW INCREASE Macau Daily Times

According to provisional data released by the Macau Finance Services Bureau (DSF), direct taxes from gaming totaled MOP 35.17BN, up 46.2% YoY, from January to May 2011.


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WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN

Margin Debt Backs Off of Recent Highs - Still at Elevated Level

We publish NYSE Margin Debt every month when it’s released.  This chart shows the S&P 500, inflation adjusted back to 1997, along with the inflation-adjusted level of margin debt (expressed as standard deviations from the long-run mean).  As the chart demonstrates, higher levels of margin debt are associated with increased risk in the equity market.  Our analysis shows that more than 1.5 standard deviations above the average level is the point where things start to get dangerous.  In May, margin debt decreased $5.3B to $315B.  On a standard deviation basis, margin debt fell to 1.36 standard deviations above the long-run average.

 

One limitation of this series is that it is reported on a lag.  The chart shows data through May.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - margin debt

 

This week's notable callouts include widening spreads in MS, AXP, and municipal bonds.

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 0 of 11 improved / 6 out of 11 worsened / 5 of 11 unchanged
  • Intermediate-term (MoM): Negative / 0 of 11 improved / 9 of 11 worsened / 2 of 11 unchanged
  • Long-term (150 DMA): Neutral / 1 of 11 improved / 6 of 11 worsened / 4 of 11 unchanged

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - summary

 

1. US Financials CDS Monitor – Swaps widened across domestic financials last week, tightening for only 1 of the 28 reference entities and widening for 27.

Widened the most vs last week: MS, AXP, ALL

Tightened the most vs last week/widened the least: PMI, RDN, AGO

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

Widened the least vs last month: GS, AON, MMC

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - US CDS

 

2. European Financials CDS Monitor – Banks swaps in Europe were wider last week.  35 of the 39 swaps were wider and only 4 tightened.   

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - Euro cds

 

3. European Sovereign CDS – European sovereign swaps continue to move higher.  Notably, Ireland and Portugal swaps are now at the level that Greek swaps were just a few months ago, with both countries in the high 800s. 

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates edged lower last week, ending at 7.57 versus 7.62 the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to slide, moving to its lowest level since mid-March, closing at 1598 versus 1602 the prior week.   

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - lev loan

 

6. TED Spread Monitor – The TED spread rose 2 bps to its highest level since early May, ending the week at 24.1 versus 22.1 the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index fell 4 points, dropping to 8.4. 

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields remained close to flat, ending the week at 1678.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - 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 rose 7 bps to 122. 

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - mcdx

 

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 the series remained flat versus the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened slightly to 254 bps.   

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  3.3% upside to TRADE resistance, 1.0% downside to TRADE support.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI AND MS SWAPS CONTINUE TO WIDEN - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur



THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - June 27, 2011

 

Ahead of the likely sluggish income and spending numbers, futures are modestly higher. Asia-Pacific stock markets posted losses overnight except China (we are LONG) and Europe was higher in the early morning.  As we look at today’s set up for the S&P 500, the range is 20 points or -0.82% downside to 1258 and 0.75% upside to 1278.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 627

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -838 (-352)  
  • VOLUME: NYSE 1740.41 (+55.74%)
  • VIX:  21.10 +9.38% YTD PERFORMANCE: +18.87%
  • SPX PUT/CALL RATIO: 2.11 from 2.41 (-12.30%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 23.61
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.88 from 2.93
  • YIELD CURVE: 2.53 from 2.58 

 

MACRO DATA POINTS:

  • 8:30 a.m.: Personal income, est. 0.4%, prior 0.4%
  • 8:30 a.m.: Personal spending, est. 0.1%, prior 0.4%
  • 10:30 a.m.: Dallas Fed, est. (-3.2), prior (-7.4)
  • 11 a.m.: Fed’s Kocherlakota speaks on leverage in Montana, audience Q&A
  • 11 a.m.: Weekly export inspections (corn, wheat, soybeans)
  • 11:30 a.m.: U.S. to sell $27b 3-mo. bills, $24b 6-mo. bills
  • 1 p.m.: Fed’s Hoenig speaks in Washington, audience Q&A
  • 1 p.m.: U.S. to sell $35b in 2-yr notes
  • 4 p.m.: Crop conditions

WHAT TO WATCH:

  • Greek lawmakers begin 3-day debate on austerity package
  • “Cars 2” from Disney’s Pixar opened as the top film in U.S., Canadian theaters this weekend, collecting $68m in ticket sales
  • President Obama meets with Senate leaders to see if they can restart the deficit/debt talks that fell apart last week

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Longest Losing Streak Since 2008 Ending for Commodities as Futures Surge
  • Bread in Japan Becoming Costlier May Curb Purchasing Power, Slow Recovery
  • Commodities Tumble to Five-Month Low on Basel Rules, Greek Austerity Vote
  • Oil Slides on Outlook for Slower Demand as IEA May Release More Stockpiles
  • Copper Falls as Greece’s Debt Crisis May Curb Demand for Industrial Metals
  • Smithfield Foods’ Hunger for Bacon Makes Sara Lee Merger Target: Real M&A
  • Gold Pares Drop After Reaching 1-Month Low on Dollar’s Gains Against Euro
  • Cocoa Climbs as Purchasers Secure Mid-Crop Supplies; Sugar Prices Decline
  • Wheat, Corn Drop as Greek Debt Woes Cut Investor Appetite for Commodities
  • Food Crisis Cooperation ‘Doomed’ Unless Action Taken, Warns Kofi Annan
  • Shanghai Sea-Cargo Volume to Increase 10% Annually as Plants Move Inland
  • Speculators Cut Agriculture Bets as Improving Weather Eases Supply Concern
  • Copper-Alloy Product Output From Japan Climbs as Demand Begins To Recover

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • Europe is generally higher lead by Span (we are short) and Italy.

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • Asian market are generally weaker (we are short Japan down -1.03%) and LONG China up +0.44%

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

Howard Penney

Managing Director


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