The Economic Data calendar for the week of the 23rd of July through the 27th 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.
40% of people intend to shop on-line for this back-to-school, per the NRF’s annual survey. This compares to 32% last year, and 21% in 2007. In other words, 42% of the 5-year increase in on-line intent has taken place over the past 12 months. If this survey is accurate, this is big.
Flying in the face of a deceleration in sales out of eBay’s GSI Commerce yesterday, the NRF released its back-to-school survey with surprising results. We usually take many of the National Retail Federation’s surveys and statistics with a grain of salt, but this one is tough to ignore. Per its latest survey, 39.6% of consumers intend to shop online for back-to-school supplies and clothes. While that’s a big number in itself, it is nearly an 800bp acceleration from the 31.7% ‘intent to purchase online’ surveyed exactly one year ago. The rate was 21.4% back in 2007. Translation – ecommerce is accelerating meaningfully. This is why we like companies who are moving forward with a strategy to get 40-50% of sales online. They might not ever get there, but these draconian moves are necessary. Companies that target just 8-10% will be left in the dust.
Chart of the Day: CAT in 70s Resource Investment Bubble
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No Current Positions in Europe
Asset Class Performance:
There was an interesting article from Bloomberg.com yesterday discussing how Ireland’s National Asset Management Agency, the state agency set up in 2009 to “purge banks of their most toxic commercial property loans, started the destruction of an apartment block for the first time.”
According to the article, Ireland has some 1,850 housing developments that have remained unfinished since the housing bubble popped in 2008. Approximately 553,000 houses were built in the ten years through 2005, for a country of 4.5MM, and now an estimated 294,000 homes lie empty.
The bulldozing of this block and many more like it is an important step for Ireland and shows a willingness to start over. Getting an economy to a “start-over” spot includes in some cases destroying excess housing supply, but also embracing a level of austerity to reduce fiscal imbalances to healthier levels off which economies can begin to grow again. We’re not saying this process is easy or short, clearly the drag could have generational impacts, but the markets need to clear. It appears, it’s the European politicians, in particular, that don’t want to let this happen.
Today’s conference call of Eurozone finance ministers is a prime example. The group of 17 approved an initial €30 Billion (of the total €100 Billion originally proposed) to recapitalize Spanish lenders, following key parliamentary approvals this week by Germany and Finland. Once again Eurocrats showed their willingness to issue yet another bailout band-aid, to deflect near-term pressures (and save their jobs) but neglect construction of a longer term roadmap. Spain’s banking loans will come initially from the remaining EFSF, with support by the ESM if Germany signs off on its terms in September, and will be directed at Spain’s Fund for Orderly Bank Restructuring (FOBR) by the end of the month.
Socialist policy makers of the world unite!? Well if today’s European equity market performance is any indication – indices were down between -1 and -5% on the day and the EUR/USD cross is trading down -1% at $1.2160 – it’s a reflection of investors’ fears that Europe does not have a credible path forward to grow GDP and eventually exit the years of this sovereign debt and banking crisis.
The cross broke through out intermediate term TREND line of $1.22. We’ll be monitoring this cross acutely. Our immediate term TRADE range is $1.21 to $1.23.
Spain - German Finance Minister Schaeuble told the Rheinische Post newspaper that Spain's government, not its banks, will be liable for the bailout of up to €100B of the Spanish banking sector.
Spain - May revise its GDP estimate for 2013 to reflect a contraction of 0.2% to 0.4% vs its previous forecast for growth of 0.2%.
Italy - Italian Prime Minister Monti expressed serious concern over a potential default by Sicily, which accounts for ~5.5% of Italy's GDP. Monti said in a statement that there were "grave concerns" that the autonomous region could default and noted that he had written to the governor Raffaele Lombardo seeking confirmation that he would resign by the end of the month.
Germany - A monthly survey of funds by Bank of America Merrill Lynch showed that a net 32% of money managers expect trouble in Germany, a sharp reversal since May. Worries may be linked to the Bundesbank's soaring claims (which now stand at €729B) on Eurozone central banks under the ECB’s “Target2” payment system.
Eurobonds/bills - Sharon Bowles, chairwoman of the European Parliament's Committee on Economic and Monetary Affairs, said that Eurobills have a better political chance than Eurobonds. She noted that "They are the most likely," adding that "There are a lot of people who believe they are possible and they would also pass muster under the German constitutional court," a major stumbling block for EU legislation.
Pan-European deposit protection scheme - Sharon Bowles, chairwoman of the European Parliament's Committee on Economic and Monetary Affairs, said that a pan-European deposit protection scheme is unlikely to gain political traction over the near-term due to limited funding availability. She noted that many member-state deposit guarantee funds are only funded after they are needed, adding that most are bankrupt due to recent bailout activity. She also pointed out that more than €10T in total deposits that would have to be insured dwarfs the €700B in ESM firepower.
Italy - The Italian lower house voted on Thursday to approve the ESM, the euro zone's new bailout fund, giving final parliamentary clearance after a vote in the Senate last week.
Sovereign CDS rose across the peripheral countries this week. On a week-over-week basis Spain rose the most, up +26bps to 594bps, followed by Ireland +11bps to 562bps and Italy (+10bps) to 515bps. Germany saw the largest decline (-12bps) to 75bps, followed by Portugal (-8bps) to 827bps. Both France and the UK fell -5bps on the week, to 168bps and 61bps, respectively.
Eurozone ZEW Economic Sentiment -22.3 JUL vs -20.1 JUN
EU-27 New Car Registrations -2.8% JUN Y/Y vs -8.7% MAY
Eurozone CPI 2.4% JUN Y/Y vs 2.4% MAY
Eurozone May Current Account +€10.9B vs prior revised +€5.5B from +€4.6B
Eurozone Construction Output -8.4% MAY Y/Y vs -6.3% APR [0.1% MAY M/M vs -3.7% APR]
Germany ZEW Current Situation 21.1 JUL (exp. 30) vs 33.2 JUN
Germany ZEW Economic Sentiment -19.6 JUL (exp. -20) vs -16.9 JUN
Germany Producer Prices 1.6% JUN Y/Y (exp. 1.8%) vs 2.1% MAY
UK CPI 2.4% JUN Y/Y = lowest level in 2.5 years (exp. 2.8%) vs 2.8% MAY [-0.4% JUN M/M (exp. -0.1%) vs -0.1% MAY]
UK Retail Price Index 2.8% JUN Y/Y (exp. 3%) vs 3.1% MAY
UK Bank of England votes 7-2 to increase Asset Purchases
UK ILO Unemployment Rate 8.1% MAY vs 8.2% APR
UK Jobless Claims Change 6.1K JUN (exp. 5K) vs 6.9K MAY
UK Retail Sales w/ Auto Fuel 1.6% JUN Y/Y (exp. 2.3%) vs 2.1% MAY
UK Public Sector Net Borrowing 12.1B GBP JUN (exp. 11.2B) vs 16.1B GBP MAY
Italy Industrial Orders -9.4% MAY Y/Y vs -12.3% APR
Spain House Price Index -8.3% in Q2 Y/Y vs -7.2% in Q1 [-2.5% in Q2 Q/Q vs -3.0%]
Portugal Producer Prices 2.7% JUN Y/Y vs 3.2% MAY
Switzerland Credit Suisse ZEW Survey of Economic Sentiment -42.5 JUL vs -43.4 JUN
Switzerland Industrial Production 1.4% in Q1 Y/Y vs 3.6% in Q4
Switzerland Exports -2.6% JUN Y/Y (exp. -1.5%) vs 1.3% MAY
Switzerland Imports -3.1% JUN Y/Y vs 0.9% MAY
Netherlands Consumer Confidence -32 JUL vs -40 JUN
Netherlands Unemployment Rate 6.3% JUN vs 6.2% MAY
Netherlands Consumer Spending -1.9% MAY Y/Y vs -2.1% APR
Ireland PPI 3.2% JUN Y/Y vs 2.0% MAY
Slovenia Unemployment Rate 11.6% MAY vs 11.8% APR
Slovakia CPI 3.7% JUN Y/Y vs 3.4% MAY
Slovakia Unemployment Rate 13.3% JUN vs 13.2 MAY
Turkey Consumer Confidence 91.8 JUN vs 92.1 MAY
Turkey Unemployment Rate 9.0% APR vs 9.9% MAR
ZEW Eastern Europe Economic Survey:
Interest Rate Decisions:
(7/19) Turkey Benchmark Repo Rate UNCH at 5.75%
The Week Ahead:
Monday: Jul. Eurozone Consumer Confidence – Advance; May Mortgages - Capital Loaned; Mortgages on Houses
Tuesday: Jul. Eurozone PMI Composite, Services, and Manufacturing – Advance; Jul. Germany PMI Services and Manufacturing - Advance; Jun. Germany Import Price Index (Jul. 24-30); Jun. UK BBA Loans for House Purchase; Jul. France PMI Services and Manufacturing – Preliminary, Own-Company Production Outlook, Production Outlook Indicator, Business Confidence Indicator; Jun. Spain Producer Prices
Wednesday: Germany IFO Business Climate, Current Assessment, and Expectations; Jul. UK CBI Trends of Total Selling, Trends of Selling Prices, and Business Optimism; 2Q UK GDP – Advance; May UK Index of Services; Jul. France Business Survey Overall Demand; Jun. France Jobseekers; Jul. Italy Consumer Confidence Indicator
Thursday: Jun. Eurozone Money Supply 3; Aug. Germany GfK Consumer Confidence Survey; Jun. Italy Hourly Wages; May Italy Retail Sales
Friday: Jul. Germany CPI; Jul. France Consumer Confidence Indicator; 2Q Spain Unemployment Rate; Jul. Italy Business Confidence
Extended Calendar Call-Outs:
18-19 October: Summit of EU Leaders
Uncertainty to how much will flow through pre-opening expense makes this a difficult quarter to predict and potentially, to analyze.
Q2 is even more of a wildcard than usual for LVS. Singapore is always difficult to predict given the lack of public data made available from other jurisdictions. We’re usually pretty close in Macau (thanks Anna) but the discretion involved in determining pre-opening expense means we could be way off on Sands Cotai Central which opened during the quarter. Sentiment is lousy but we’re generally below the Street so what to do? Too much risk either way so we’ll defer until we are wearing our post conference call analysis hats.
Here are our projections:
Our estimate for Macau property-level EBITDA and net revenues is 10% and 5%, below the street at $443MM and $1.49BN, respectively. More specifically, we’re below the Street on Sands, Venetian and Four Seasons, but above the Street on Sands Cotai Central’s performance –partly because we think that a lot will get tossed in the pre-opening bucket. Sands and Venetian played unlucky this quarter, FS held a bit above their historical hold, and Sands Cotai Central held high on their baccarat play. We estimate that EBITDA would have been $8MM lower if Sands held at its historical rate across its properties.
Venetian is projected to report net revenue of $686MM and EBITDA of $249MM, 6% below consensus on both metrics.
We expect Sands to report net revenue of $284MM and EBITDA of $73MM, 7% and 16% below the Street, respectively.
We estimate $258MM of net revenue and $67MM of EBITDA, 11% below the Street on both metrics.
Sands Cotai Central
We estimate $266MM of net revenue and $54MM of EBITDA, 9% and 23% ahead of the Street, respectively.
We project $777MM of net revenue and EBITDA of $407MM, 2% and 3% below consensus, respectively.
We estimate that Venetian and Palazzo’s net revenues will be $339MM with EBITDA of $88MM, which are 1% and 7% below Street estimates, respectively.
We expect Sands Bethlehem to report $117MM of revenue and $29MM of EBITDA, 7% and 10% above consensus estimates, respectively.
American Express (AXP) just can’t get its act together. After reporting its second quarter earnings, it’s clear that our macro Growth Slowing call is kicking into gear. The company reported large sequential deceleration in every growth category.
The company isn’t growing card volumes and instead is watching them evaporate, particularly in Europe. Taking into account that 100 basis points equates to one percentage point, look at the downward spiral that is AXP below:
US volumes slowed 380 bps to 8.7% YoY in 2Q vs. 12.5% in 1Q. International volumes slowed 920 bps to 3.0% YoY growth in 2Q from 12.2% YoY growth in 1Q. Right now the business is split 2/3 US and 1/3 International. As a result, overall growth slowed 570 bps to 6.7% YoY in 2Q from 12.4% last quarter.
Conversely, MasterCard (MA) is doing quite well. Over the last five years, MasterCard is up 157% compared with American Express’ -12%. It’s easy to see why we’re bearish on AXP and bullish on MA. Visa (V) is also a winner, up over 95% during the same five year period. V and MA are doing well in the broader market. The Financials SPDR (XLF) lost 55% in that five year period, too.
The chart says it all. While MasterCard may be a little pricey, trading at 19x earnings, it’s golden compared to American Express’ performance and outlook.
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