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December ECB Presser: Only Growth Cut, Happy Holidays!

Takeaway: Growth revised down once again. Draghi stretches for optimism.

Positions in Europe: Short Russia (RSX)


Today’s Q&A session revealed that there was “wide discussion [about a rate cut] but the prevailing consensus was to leave rates unchanged”, leaving the interest rate on the main refinancing operations unchanged at 0.75% along with the interest rates on the marginal lending facility and the deposit facility at 1.50% and 0.00%, respectively.

 

December ECB Presser: Only Growth Cut, Happy Holidays! - 55. rates

 

The real call-out of the meeting is the ECB staff’s projections downward revision for Eurozone GDP. Below we show the last three estimates, with the trend decidedly Down, Down, Down. This move however didn’t come as a great surprise as we noted it in our November ECB report. We’d call to your attention specifically 2013, which shows a dramatic revision to the top end range.

 

2012 GDP growth

DEC: -0.6% and -0.4%   SEPT: -0.6% and -0.2%   JUN: -0.5% and 0.3%

 

2013 GDP growth

DEC: -0.9% and 0.3% for 2013   SEPT: -0.4% and 1.4%   JUN:  0.0% and 2.0%

 

Beyond the inability of the ECB to accurately forecast, what was telling about today’s conference was that Draghi went so far as to paint an optimistic tone (in spite of falling economic projections) by citing business confidence surveys in Germany, France, and Italy that ticked up in the most recent reading. Citing merely this data in a sea of negative to depressed data is an obvious stretch.

 

The Q&A was largely filled with a tight-lipped Draghi for any comment on Spain or Italy tapping the OMT, with him simply reiterating that it’s up to the individual Eurozone governments to request a bailout and that the Bank stands ready to use OMTs (of course under conditional requirements).

 

However, one question on a Banking Union is worth highlighting. To paraphrase, it went: “Given that the ECB’s stance on a Banking Union remains that it should include all 6,000 banks whereas the Germans believe it should only include its largest banks, if it is decided that a Banking Union does not include all 6K does it make sense to have it at all?”. To this Draghi dodged the answer and only said that a Banking Union needs a strong supervisor where the ECB doesn’t have reputational risk.  

 

This is a clear signal to us that the ECB and Germans (in particular) will be at loggerheads over the formation of a Banking Union, and extend market consternation as Eurocrats push out the formation of a Banking and Fiscal Union. We believe the inability to find a solution should strengthen the lid on the EUR/USD, with our intermediate term TREND line of resistance in the sand firmly at $1.31.

 

While we will not argue that we have seen improvement in European equity and bonds markets since this summer, especially following Draghi’s September OMT announcement, we contend that despite all the market intervention, prices will (in time) reflect the underlying health (or lack thereof) of the region.  Here we believe Europe’s path to growth will be constrained and prolonged by Eurocrats. Weak credit lines to households and corporations are one piece of evidence of a very clogged environment that should hamper real growth.

 

December ECB Presser: Only Growth Cut, Happy Holidays! - 55. loans

 

You can find Draghi’s Introductory Statements here.

 

Matthew Hedrick

Senior Analyst


Solid November For Macau

Gross gaming revenue (GGR) in Macau rose 8% in November on a year-over-year basis. Despite a tough hold comp, VIP hold appeared slightly below normal for this year but well below 2011 numbers. Mass revenue led the way, up 33%, while VIP revenue declined slightly for the second consecutive month. How did the Macau players fare?

 

Sands China (LVS) saw market share at 20.8%, up 15.6% year-over-year. GGR growth led the market and the mass business grew a whopping 75% year-over-year. Wynn (WYNN) struggled with GGR down 2% and mass hold up only 6%. MPEL saw GGR grow above average and mass share grew to 12.9%, an all-time high. MGM Resorts (MGM) had the worst month with market share barely rebounding from October’s 8.9% number and mass share was only 6.9%, nearly an all-time low. GGR fell for the second straight month at MGM.

 

Solid November For Macau - 2222


JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME

Takeaway: While there may be a small amount of further renormalization, the bulk of the post-Sandy distortion is behind us.

Back to Normal / Tailwinds Ahead

Initial claims are now essentially back to pre-Sandy levels. We show this in the first chart below. For the last few weeks we've been looking at state level claims data for NY, NJ and PA. State level data is released on a one-week lag relative to the national data. Two weeks ago, NY, NJ and PA accounted for 20.3% of total jobless claims, while accounting for 13.0% of the population. That difference, 7.3%, is down from 12.4% in the previous week. If we adjust the claims number from two weeks ago, 393k, for this over-representation we find normalized claims should be around 366k (393k / 1.073). This morning's print of 370k is consistent with that estimation. 

 

We expect that claims should start to resume their normal behavior in the coming weeks. As a reminder, we continue to expect a seasonality-driven tailwind to benefit the data through the end of February. This, combined with our bullish view on housing, should provide an ongoing top-down tailwind for the sector.

 

The Numbers

This week initial jobless claims fell 23k to 370k from 393k. The prior week's number was revised up by 2k to 395k. Incorporating this upward revision,  claims were lower by 25k. Rolling claims, meanwhile, rose 2.25k WoW to 408k and non-seasonally adjusted claims rose 140k to 499k. The rolling series, both SA and NSA, are obviously reflecting the Sandy distortion on a lag. We expect that one month from now they will fully normalized.

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 1

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 2

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 3

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 4

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 5

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 6

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 7

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 8
 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 9

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 10

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 11

 

JOSHUA STEINER: JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 12 

 

Joshua Steiner, CFA

 

Robert Belsky


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MACAU: A SOLID NOVEMBER

As you know, Macau GGR increased 8% YoY despite a tough hold comparison.  VIP hold appeared slightly below normal in November 2012 but well below November 2011.  Once again, Mass revenue led the way, up 33% while VIP revenue declined slightly (less than 1%) for the 2nd consecutive month and the last 4 out of 5 months.  VIP chips (volume) was up a solid 7%, however.  Overall, November was a decent month and we expect December to be even better.  However, we remain concerned about the upcoming smoking restrictions, potential junket crackdown, the weak performance of the SSE, and stabilizing Mass hold %. 

 

We will post a more detailed analysis later today but LVS was the clear winner this month, on many fronts.  Here are some company-specific analysis:

 

 

Sands China

  • Market share was a strong 20.8%, up from 15.6% last year and in-line with October’s strong showing.  We continue to believe that Sands will post fairly consistent share improvement over the next 12 months on a hold adjusted basis.
  • Mass share was equally impressive at 27.7%, 2nd highest in last 3 years.
  • Not surprisingly, Sands YoY GGR growth of 44% led the market but more impressively, its Mass business grew a whopping 75%.
  • VIP hold was slightly below normal and well below last year making the VIP growth even more impressive

 

Wynn

  • Wynn struggled again this past month with GGR down 2% and Mass only up 6%.
  • Market share was in-line with its 12 month average but only because Wynn held well above normal albeit slightly below November 2011
  • Mass share fell to 7.5%, an all-time low

 

MPEL

  • Overall a solid month for MPEL:  GGR share was slightly above the 12-month average but Mass share grew to 12.9%, an all-time high
  • GGR grew 15% YoY and Mass increased 40% YoY
  • VIP hold was well below normal and last November’s hold so the month could’ve been even better for MPEL

 

MGM

  • Market share rebounded from October’s abysmal 8.9% but was still lower than the 12 month average
  • Mass share was only 6.9%, near an all-time low
  • MGM GGR fell for the 2nd straight month – not good
  • MGM did get hit in the hold side, however – well below normal and last year.  VIP volume growth did lag the market though.

 

MACAU: A SOLID NOVEMBER - 2222


JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME

Takeaway: While there may be a small amount of further renormalization, the bulk of the post-Sandy distortion is behind us.

Back to Normal / Tailwinds Ahead

Initial claims are now essentially back to pre-Sandy levels. We show this in the first chart below. For the last few weeks we've been looking at state level claims data for NY, NJ and PA. State level data is released on a one-week lag relative to the national data. Two weeks ago, NY, NJ and PA accounted for 20.3% of total jobless claims, while accounting for 13.0% of the population. That difference, 7.3%, is down from 12.4% in the previous week. If we adjust the claims number from two weeks ago, 393k, for this over-representation we find normalized claims should be around 366k (393k / 1.073). This morning's print of 370k is consistent with that estimation. 

 

We expect that claims should start to resume their normal behavior in the coming weeks. As a reminder, we continue to expect a seasonality-driven tailwind to benefit the data through the end of February. This, combined with our bullish view on housing, should provide an ongoing top-down tailwind for the sector.

 

The Numbers

This week initial jobless claims fell 23k to 370k from 393k. The prior week's number was revised up by 2k to 395k. Incorporating this upward revision,  claims were lower by 25k. Rolling claims, meanwhile, rose 2.25k WoW to 408k and non-seasonally adjusted claims rose 140k to 499k. The rolling series, both SA and NSA, are obviously reflecting the Sandy distortion on a lag. We expect that one month from now they will fully normalized.

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Hurricane Sandy

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Initial Claims Rolling NSA YoY

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - State Claims

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Raw

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Rolling

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - NSA

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - NSA rolling

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - S P

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Fed

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - YoY NSA

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Initial Claims recession

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Rolling Linear

 

Yield Spreads

The 2-10 spread fell 1 basis point WoW to 135 bps. 4QTD, the 2-10 spread is averaging 1.41%, which is up 4 bps relative to 3Q12.   

  

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 2 10

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations.

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Subsector Performance

 

JOBLESS CLAIMS: SANDY EXITS THE DATA / TAILWINDS SET TO RESUME - Companies

 

Joshua Steiner, CFA

 

Robert Belsky


Diving Into Energy

If we analyze the energy sector to see what investors are piling into, we find that the top performing stock factors in energy over the last three months are: low margin, low short interest and large cap. The safety trade remains popular.

 

Diving Into Energy - facro


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