prev

Industrial Indicator: Truck Backlog to Build and More on Mining

Chart of the Day

  • Backlog to build ratio declines consistent with expectations for production cuts
  • Historically, very low backlog to build ratios have coincided with buying opportunities in shares of OEMs
  • Declining production should keep the Class 8 truck fleet old
  • An older fleet with high utilization (mid-90s in May) is typically associated with outperformance for OEM shares

Industrial Indicator: Truck Backlog to Build and More on Mining - class 8 back to build

 

The Mining Investment Bubble

Yesterday’s Industrial Indicator on Caterpillar’s exposure to mining investment attracted some interest.  The Resources division is CAT’s most profitable and has the highest margins and returns on assets.  CAT even added Bucyrus to this division, apparently with poor cyclical timing.  This is not to say that Bucyrus is a bad fit inside of CAT, just that it was purchased during a period of (very) abnormally high investment in mining equipment.  The first step of our investment process separates cyclically driven results from secular/sustainable results.  The resources division at CAT, along with other mining exposed equipment producers like Sandvik, Komatsu, JOY, and Terex, could see that source of demand evaporate.  Global mining output could continue to expand with much lower levels of capital spending, so a commodity crash is not required for revenues in these divisions to contract.

 

Industrial Indicator: Truck Backlog to Build and More on Mining - perf 7132012

 


HedgeyeRetail Visual: Dollar Store Tailwinds Fading

Over the past 5 years, the Dollar Stores experienced a notable shift in both private label and consumables right when the consumer needed it which drove massive margin expansion. This happened alongside accelerated unit growth and a tailwind from food inflation. Now, private label and consumables penetration are hitting a ceiling and food prices are deflated relative to last year. With margins now at peak, we don’t need profitability to deteriorate but rather for these tailwinds to fade in order to build the short case.   

 

HedgeyeRetail Visual: Dollar Store Tailwinds Fading - dollar store margins

 

HedgeyeRetail Visual: Dollar Store Tailwinds Fading - Food Inflation


THE WEEK AHEAD

The Economic Data calendar for the week of the 16th of July through the 20th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

THE WEEK AHEAD - WeekAhead


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 13, 2012


As we look at today’s set up for the S&P 500, the range is 25 points or -0.43% downside to 1329 and 1.44% upside to 1354. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - one

 

THE HEDGEYE DAILY OUTLOOK - two

 

THE HEDGEYE DAILY OUTLOOK - three

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 07/12 NYSE -792
    • Down versus the prior day’s trading of 75
  • VOLUME: on 07/12 NYSE 763.79
    • Decrease versus prior day’s trading of -55bps
  • VIX:  as of 07/12 was at 18.33
    • Increase versus most recent day’s trading of 2.12%
    • Year-to-date decrease of -21.67%
  • SPX PUT/CALL RATIO: as of 07/12 closed at 1.31
    • Up from the day prior at 1.10 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 36
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.48%
    • Increase from prior day’s trading at 1.47%
  • YIELD CURVE: as of this morning 1.23
    • Down from prior day’s trading at 1.22 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: PPI M/m, June, est. -0.5% (prior -1%)
  • 8:30am: PPI Ex Food/Energy M/m, June, est. 0.2% (prior 0.2%)
  • 9:55am: U. of Michigan Conf., July, est. 73.5 (prior 73.2)
  • 11am: Fed to purchase $1.5b-$2b coupon securities in 2/15/2036 to 5/15/2042 range
  • 1pm: Baker Hughes rig count
  • 1:20pm: Fed’s Lockhart speaks in Jackson, Mississippi 

GOVERNMENT:

    • Opening news conf. at Natl Governors Assn. meeting, 10am
    • House meets in pro forma session, Senate schedule TBA
    • N.Y. Fed releases documents on troubles detected with Libor
    • CFTC holds closed meeting on enforcement matters, 10am
    • SEC holds closed meeting on enforcement matters, 1pm
    • Acting Commerce Secretary Rebecca Blank speaks at opening of first U.S. Patent and Trademark Office satellite in Detroit
    • Wikimedia hosts 2012 Wikimania conference on government use of Wiki information networks, 9am
    • National Academy of Sciences holds conference call briefing to discuss report on three options for National Bio-, Agro- Defense Facility in Manhattan, Kansas, 1pm 

WHAT TO WATCH: 

  • JPMorgan releases earnings; 2-hr call with analysts 7:30am
  • Wells Fargo releases earnings
  • Google’s Page in much better health, Chairman Schmidt says
  • Lexmark cuts 2Q sales forecast, citing European demand
  • Berkshire Hathaway CEO Warren Buffett on BTV at 8am
  • China’s growth slows to 3-yr. low on trade, demand
  • New York Fed to release documents on Libor
  • P&G board members said to discuss replacing CEO McDonald
  • Bank of Korea trims 2012 growth forecast after cutting rates
  • Italy credit rating cut by Moody’s; contagion, funding risks
  • Italy readies $6.1b bond sale
  • Darden Restaurants to buy Yard House USA for $585m
  • Bernanke testifies, China housing, GOOG: Wk Ahead July 14-21
  • JPMorgan’s ‘London Whale,’ two supervisors leave bank: WSJ 

EARNINGS:

    • JPMorgan Chase (JPM) 7am, $0.76
    • Webster Financial (WBS) 8am, $0.44
    • Wells Fargo (WFC) 8am, $0.81 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Carbon Surge Stokes Suspicion EU Ideas Leaked: Energy Markets
  • U.S. Tightens Iran Noose With Sanctions on Tankers, Front Firms
  • Copper Traders Most Bearish in Six Weeks on Demand: Commodities
  • Asian Corn Demand Seen Gaining as Drought Shrivels U.S. Crop
  • Oil Rises on China Stimulus Optimism, Tightening Iran Sanctions
  • Corn Rallies in Best Weekly Run Since November on U.S. Drought
  • Copper Advances as China Slowdown May Signal Additional Easing
  • India to Review Sugar Exports After Sales Reach 2 Million Tons
  • Gold Advances in New York on Speculation Over Stimulus by China
  • Cocoa Advances After Falling 5.1% on Lower European Processing
  • Malaysia Weather Dept. Sees 58% Chance of El Nino From August
  • Bipartisan Attacks Stymie Bill to Overhaul U.S. Agriculture
  • Malaysian Cocoa Maker Guan Chong Said to Consider Bids for Stake
  • U.K. Seen Doubling Power Price to Guarantee New Reactor: Energy
  • Rubber Gains, Paring Weekly Loss, as Rains Cut Thai Supplies
  • Palm Oil Rebounds as Some Investors Cover Bets on Further Losses
  • India to Sell Wheat From Reserve as Prices Surge on U.S. Drought

 THE HEDGEYE DAILY OUTLOOK - four

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - five

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - six

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - seven

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - eight

 

 

 

The Hedgeye Macro Team


THE M3: S'PORE GDP; PACKAGE DATA; GOKNOGWEI; MGM

The Macau Metro Monitor, July 13, 2012

 

 

SINGAPORE GDP UNEXPECTEDLY CONTRACTS IN 2Q WSJ

According to advance estimates released by the Ministry of Trade and Industry, Singapore 2Q GDP unexpectedly contracted mainly due to a sequential contraction in the manufacturing sector.  2Q GDP fell 1.1% QoQ on a seasonally adjusted and annualized basis, missing estimates of 0.8% growth.  On a YoY basis, 2Q GDP grew 1.9%, missing consensus of +2.4%.

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR MAY 2012 DSEC

Visitor arrivals in package tours increased by 11.7% YoY to 669,460 in May 2012.  Visitors from Mainland China (465,923) went up by 4.9%, with 166,292 coming from Guangdong Province; Taiwan (52,839), Hong Kong (33,485), and the Republic of Korea (24,941) increased by 63.2%, 28.0% and 18.5% respectively.

 

There were 24,117 guest rooms available at the 97 hotels and guest-houses at end-May 2012, an increase of 2,599 rooms (+12.1%) YoY, with those of the 5-star hotels accounting for 61.1% of the total.  The average length of stay decreased by 0.11 night to 1.4 nights.

 

GOKNOGWEI IN TALKS TO JOIN OKADA FOR VEGAS STYLE, $2BN CASINO BY BAY Philippine Daily Inquirer

Filipino billionaire, John Gokongwei Jr., is reportedly in talks to join Kazuo Okada in the development of his Manila Bay Casino project.  According to sources, Gokongwei’s property arm, Robinson Land Corp., has offered to run the gaming and retail operations of Okada’s Tiger Resorts project, worth $2 billion, in Entertainment City, a 100-hectare property on the edge of Manila Bay.  Gokongwei, who owns a shopping mall chain, hotel resorts and the country’s biggest budget airline, Cebu Pacific, would be joined in the project by another Filipino billionaire, Andrew Tan, whose property group would handle the land development side of Okada’s casino project.

 

MGM CHINA LOOKING FOR HK$12 BILLION LOAN Reuters

MGM China Holdings is seeking a HK$12-billion (US$1.55 billion) refinancing loan.



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next