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JOBLESS CLAIMS: IS THE LABOR MARKET REALLY AS STRONG AS IT SEEMS?

Takeaway: Consistent with the last few years, the labor market is saying one thing but doing another: early signs of deterioration.

Is Labor Improving?

The headline number certainly suggests the labor market is roaring ahead, and this is consistent with our view that the seasonality tailwinds will run full force through the end of February. That said, the non-seasonally adjusted data appears to be deteriorating. On a rolling, year-over-year basis, the improvement in the latest week slipped to -4.3% from -7.0% the week prior and -9.7% the week prior to that. We've long argued that looking at the rolling NSA data is a better barometer of the underlying health of the labor market because there are so many errors currently plaguing the seasonally-adjusted data. As such, we think it's a fair question to ask whether the labor market's underlying health is starting to weaken. We'll want to see more data before drawing any firm conclusions. 

 

There was no revision to the prior week's data, so the 5k WoW decrease to 330k from 335k is apples to apples. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -8k WoW to 351k.

 

As mentioned above, the 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -4.3% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.0% 

 

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Yield Spreads Continue to Widen

The 2-10 spread rose +1 basis point WoW to 159 bps. 1Q13TD, the 2-10 spread is averaging 161 bps, which is higher by 18 bps relative to 4Q12.

 

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Joshua Steiner, CFA



SBUX EPS TONE SHOULD BE POSITIVE

Starbucks’ top and bottom lines are facing favorable conditions, versus last year, and we expect management commentary on today’s earnings call to be bullish.

 

We expect some positivity from Seattle after the close today.  As we wrote two weeks ago, CPG and international growth offer talking points for management to highlight the growth runway still facing this company on a global basis.  An improving employment picture in the US could be an important driver of the company’s most important market. 

 

Below, we show the same-restaurant sales chart for the US and, in the third chart, the year-over-year change in restaurant operating margins versus the year-over-year change in the spot coffee price. 

 

1. US Employment has been improving, as underlined by this morning’s initial jobless claims data, which came in at 330k vs 355k expected, and this increases our confidence in Starbucks’ ability to continue to drive industry-leading same-restaurant sales growth in the US.


SBUX EPS TONE SHOULD BE POSITIVE - inital jobless claims

 

SBUX EPS TONE SHOULD BE POSITIVE - sbux americas sss cons

 

 

2. Coffee needs are locked through 1HFY14 but, given the continuing softness in spot market prices since the company's most recent guidance, more positive news on input costs seems likely either on today’s conference call or at some point in the near future. 

SBUX EPS TONE SHOULD BE POSITIVE - sbux pod 2 coffee prixe

 

 

3. EMEA SSS will likely be negatively impacted by the UK market, where Starbucks has experienced some negative publicity related to its contribution to Her Majesty’s Revenue and Customs relative to the revenue the company sources in the country.


SBUX EPS TONE SHOULD BE POSITIVE - sbux emea sss cons

 

SBUX EPS TONE SHOULD BE POSITIVE - sbux cap sss cons

 

 

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst


Time It Right

Client Talking Points

Go With The Flows

You can’t fight a tidal wave, but you can surf with it and use it to reach the beach. That’s what happens when fund flows move to US equities and the big asset managers start buying stocks. You might have a stock that seems like a great idea for a short and all of the math adds up...until it doesn’t, because some fund manager is buying a huge block of it and driving the price up. This is why timing is more important than ever right now. You can’t fight big beta, so embrace it and make sure that if you’re going to fight against the majority, you get the timing right.

Asset Allocation

CASH 52% US EQUITIES 12%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“I DON"T FLIPPING BELIEVE IT!! Mary Jo White has been nominated for head of the SEC. Another Lawyer who doesn't understand markets.” -@SapienQuis

QUOTE OF THE DAY

“Life isn't fair. It's just fairer than death, that's all.” -William Goldman

STAT OF THE DAY

US weekly jobless claims fall by 5000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008.


Early Look

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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 24, 2013


As we look at today's setup for the S&P 500, the range is 17 points or 1.06% downside to 1479 and 0.08% upside to 1496.   

                                                                                                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10a


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.58 from 1.59
  • VIX  closed at 12.46 1 day percent change of 0.24%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Initial Jobless Claims, Jan. 19, est. 355k (prior 335k)
  • 8:30am: Continuing Claims, Jan. 12, est. 3.2m (prior 3.214m)
  • 8:58am: Markit US PMI, Jan. preliminary, est. 53 (prior 54)
  • 9:45am: Bloomberg Consumer Comfort, Jan. 20 (prior -35.5)
  • 10am: Leading Indicators, Dec., est. 0.4% (prior -0.2%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: DOE inventories
  • 11am: Kansas City Fed Manufacturing, Jan., est. 1 (prior -2)
  • 11am: Fed to buy $2.75b-$3.5b debt in 2020-2022 sector
  • 11am: U.S. Treasury to announce plans for sale of 2Y notes, 5Y notes, 7Y notes
  • 1pm: U.S. Treasury to sell $15b 10Y TIPS

GOVERNMENT:

    • Senate in session, House not in session
    • Nom. hearing for Sen. John Kerry, D-Mass., as Sec of State
    • Sen. Dianne Feinstein, D-Calif., to introduce gun legislation
    • U.S., Japan to sign amendment to bilateral income tax treaty
    • HHS, FDA meeting on public health benefits, risks of drugs containing hydrocodone, 8am
    • HHS, NIH meeting on H1N1/bird flu transmission and data management, 9am
    • Senate Health, Education, Labor and Pensions Cmte hearing on mental health system in America, 10am

WHAT TO WATCH

  • Apple plunges after sales forecast trails est.
  • Asian suppliers fall after Apple’s sales outlook
  • Commerzbank plans to cut as many as 6,000 jobs worldwide, Barclays said to plan 15% job cuts at Asian investment bank
  • Citigroup’s Corbat says pay environment to remain challenging
  • World Economic Forum in Davos continues
  • Delta Air Lines is talking to Airbus, Boeing on buying jets
  • Euro-area composite PMI contracts at slower pace than est.
  • Delphi considers ‘bolt-on’ acquisitions against paying dividend
  • North Korea threatens to conduct nuclear test
  • Three-month suspension of U.S. debt ceiling passed by House
  • FDA approves Roche’s Avastin with chemo for colorectal cancer

EARNINGS:

    • Cash America International (CSH) 6am, $1.20
    • Keycorp (KEY) 6am, $0.21
    • Stanley Black & Decker (SWK) 6am, $1.28
    • Knight Capital (KCG) 6am, $0.03
    • McCormick & Co (MKC) 6:30am, $1.14
    • Southwest Airlines Co (LUV) 6:45am, $0.07
    • Xerox (XRX) 6:51am, $0.29
    • AO Smith (AOS) 7am, $0.81
    • Colonial Properties Trust (CLP) 7am, $0.33
    • Hubbell (HUB/B) 7am, $1.20
    • International Speedway (ISCA) 7am, $0.56
    • National Penn Bancshares (NPBC) 7am, $0.17
    • Teledyne Technologies (TDY) 7am, $1.08
    • AmerisourceBergen (ABC) 7am, $0.67
    • Ametek (AME) 7am, $0.48
    • Baxter International (BAX) 7am, $1.26 - Preview
    • Celgene (CELG) 7am, $1.32
    • Dover (DOV) 7am, $1.07
    • EQT (EQT) 7am, $0.42
    • Raytheon (RTN) 7am, $1.31
    • EQT Midstream Partners (EQM) 7:05am, $0.40
    • Brunswick (BC) 7:30am, $(0.08)
    • Fairchild Semiconductor (FCS) 7:30am, $0.10
    • 3M Co (MMM) 7:30am, $1.41 - Preview
    • Timken Co (TKR) 7:30am, $0.62
    • Airgas (ARG) 7:30am, $1.07
    • Bristol-Myers Squibb Co (BMY) 7:30am, $0.42 - Preview
    • Kennametal (KMT) 7:30am, $0.64
    • Lockheed Martin (LMT) 7:30am, $1.82
    • United Continental Holdings (UAL) 7:30am, $(0.61)
    • Alaska Air Group (ALK) 8am, $0.71
    • Avnet (AVT) 8am, $0.83
    • Cypress Semiconductor (CY) 8am, $0.04
    • Meredith (MDP) 8am, $0.87
    • WW Grainger (GWW) 8am, $2.61
    • Janus Capital Group (JNS) 8am, $0.14
    • Precision Castparts (PCP) 8am, $2.47
    • Rayonier (RYN) 8am, $0.57
    • Union Pacific (UNP) 8am, $2.16
    • Coherent (COHR) 8:02am, $0.72
    • AVX (AVX) 8:30am, $0.15
    • Deluxe (DLX) 8:30am, $0.88
    • GATX (GMT) 8:30am, $0.54
    • OSI Systems (OSIS) 8:30am, $0.68
    • Old Republic International (ORI) 9am, $(0.05)
    • Informatica (INFA) 4pm, $0.37
    • Microsemi (MSCC) 4pm, $0.52
    • AT&T (T) 4:02pm, $0.45
    • Sterling Financial (STSA) 4pm, $0.52
    • Cirrus Logic (CRUS) 4pm, $1.41
    • JB Hunt (JBHT) 4pm, $0.70
    • Maxim Integrated (MXIM) 4pm, $0.41
    • Select Comfort (SCSS) 4:01pm, $0.32
    • Federated Investors (FII) 4:01pm, $0.40
    • Open Text (OTC CN) 4:01pm, $1.38
    • Flextronics (FLEX) 4:01pm, $0.20
    • Micros Systems (MCRS) 4:02pm, $0.58
    • Covance (CVD) 4:02pm, $0.71
    • Microsoft (MSFT) 4:02pm, $0.74
    • Starbucks (SBUX) 4:03pm, $0.57
    • VeriSign (VRSN) 4:04pm, $0.51
    • Cepheid (CPHD) 4:05pm, $(0.01)
    • E*Trade Financial (ETFC) 4:05pm, $(0.54)
    • Juniper Networks (JNPR) 4:05pm, $0.22
    • ResMed (RMD) 4:05pm, $0.52
    • Tempur-Pedic International (TPX) 4:05pm, $0.55
    • SVB Financial Group (SIVB) 4:14pm, $0.88
    • City National (CYN) 4:15pm, $1.00
    • Glacier Bancorp (GBCI) 4:15pm, $0.28
    • Synaptics (SYNA) 4:15pm, $0.45
    • KLA-Tencor (KLAC) 4:15pm, $0.56
    • QLogic (QLGC) 4:15pm, $0.17
    • Energen (EGN) 4:49pm, $0.74
    • Hancock Holding (HBHC) 5pm, $0.63
    • Iberiabank (IBKC) Late, $0.79

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


GOLD – both Apple and Gold bulls will be as quiet as NFLX bears this morn; some serious pin action in names where consensus has very strong views; Our AAPL TAIL risk line of $561 remains intact (no position); Gold failed, fast, at $1692 TREND resistance yesterday, and Netflix, well, just look at it if you want to feel like it’s 1999.

  • Gold Seen Extending Rally as Fed’s QE3 to Last Through 2014
  • Sugar Rush Leaves U.S. With Biggest Glut in Decade: Commodities
  • Copper Declines as Codelco Adds to Indications of Ample Supply
  • Oil Trades Near One-Week Low on U.S. Supplies, Seaway Pipeline
  • Gold Drops to One-Week Low as Growth Outlook Curbs Haven Demand
  • Economist Gartman Sells Some WTI Oil and May Get Out Entirely
  • Iron Ore Seen Falling in Second Quarter as China Restocking Ends
  • Robusta Coffee Advances on Stockpiles, Vietnam Crop; Cocoa Gains
  • Brazil Sugar at Ports Rises 23% as Ships Head to Algeria, India
  • China Tracks Errol Flynn to Tasmania in Quest for Wind: Energy
  • HSBC Cuts Gold Allocation on 3-Year and Six-Month View
  • China Zinc Output May Peak in 2015 as Project Pipeline Thins
  • Rubber May Extend Rally After Golden Cross: Technical Analysis
  • Zinc Mine Supply Growth May Slow During Next Eight Years

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


FRANCE – let’s not talk about Spain’s unemployment going up again (even though they make up the numbers, they still see unemployment rising to 26% in Q4 vs 25% prior); lets talk about the country everyone wants to be: France – French PMI for JAN gets spanked to 42.9 vs 44.6 in DEC (Services PMI down too, 43.6 vs 45.2 last mth), French #GrowthSlowing.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


ASIA – KOSPI down another -0.8% after snapping its TRADE line of support 2-days ago, taking the correction to -3.3% from the JAN high; something to watch alongside the Hang Seng (2 days of lower-highs) and Shanghai Comp that was also -0.8% overnight and also broke its TRADE line of 2308 support into the close.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


THE M3: MSC LOAN; CZR IN KOREA

The Macau Metro Monitor, January 24, 2013

 

 

MELCO CROWN TO SIGN $1.4 BLN LOAN ON FRIDAY Reuters

On Friday, MPEL will sign the US$1.4 billion syndicated loan backing its Macau Studio City project which is expected to cost over $2.5 billion.  The loan was led by eight mandated lead arrangers and bookrunners, including Bank of China Macau, Industrial & Commercial Bank of China Macau, ANZ, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Credit Agricole CIB and UBS. 

 

The five-year deal is split into a US$1.3 billion amortizing loan and a US$100 million revolving credit. The loand has a rate of L+450bps plus commitment fees adding up to an all-in rate of L+483bps and a duration of 4.8 years.

 

CAESARS JOINS KOREAN CASINO PROJECT Macau Business

Caesars has joined Hong Kong-listed Lippo Ltd in a casino project in South Korea.  According to a Lippo statement to the Hong Kong Stock Exchange, the two companies agreed on Wednesday to the terms under which they will seek permission from the South Korean government to develop a casino resort in Incheon, a city near the country’s capital of Seoul.  Caesars will own 40% of the venture, Lippo will own 20%, and another partner will hold the remaining 40%.

 

 

 


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