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BUILDER CONFIDENCE IMPROVES, BUT REMAINS IN BEARISH TERRITORY

Takeaway: Builder confidence bounces in June, but only so far. Confidence remains well below its 51-58 range seen in 2H13.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

BUILDER CONFIDENCE IMPROVES, BUT REMAINS IN BEARISH TERRITORY - Compendium 061614

 

Today's Focus: NAHB HMI (Builder Confidence Survey)

This month, the NAHB’s HMI, which measures builder confidence, rose to 49, a gain of four points from May's print of 45 (which was not subject to any revision). For reference, last month's 45 print was the lowest reading in the last 12 months.

 

  • Headline:  Modest bounce but the Good/Bad delineation line is 50 – so less worse remains the more apt descriptor of the prevailing reality than ‘accelerating recovery’.  The June reading of 49 marks the 5th consecutive month below 50            
  • Sub-indices: All three index components gained on the month with current sales leading gainers at +6 pts sequentially. 
  • Regional:  West/South/Midwest all bounced MoM while the Northeast reversed two months of sequential gains. On a 3M rolling average basis (NAHB's preferred read) all regions ticked up moderately with the exception of the Midwest. 
  • The Homebuilder Optimism Spread (6M estimates less Current Traffic) remains near post recession peak levels.  

 

Following four consecutive months of decline/stagnation, builder confidence finally caught a bounce in this most recent survey.

 

NAHB Chairman Kevin Kelly had this to say:

 

After several months of little fluctuation, a four-point uptick in builder sentiment is a welcome sign and shows some renewed confidence in the industry. However, builders are facing strong headwinds, including the limited availability of labor.”  

 

While NAHB's Chief Economist, David Crowe, added this: 

 

Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase. Builders are reacting accordingly, and are moving cautiously in adding inventory.”

 

From June 2013 through January 2014, the NAHB index was in clear recovery/improvement territory with readings of 51-58. While this morning's print is an improvement, it still falls well short of 2H13 levels and remains below the 50 line. 

 

 

BUILDER CONFIDENCE IMPROVES, BUT REMAINS IN BEARISH TERRITORY - NAHB HMI LT

 

BUILDER CONFIDENCE IMPROVES, BUT REMAINS IN BEARISH TERRITORY - NAHB SubIndices

 

BUILDER CONFIDENCE IMPROVES, BUT REMAINS IN BEARISH TERRITORY - NAHB Regional

 

BUILDER CONFIDENCE IMPROVES, BUT REMAINS IN BEARISH TERRITORY - NAHB Optimism Spread

 

About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


European Banking Monitor: Swaps Move Slightly Lower on the Week

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

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European Financial CDS - Greek bank swaps continued to dive last week, falling an average of 70 bps on the week and dropping by an average of 116 bps on the month. Outside of Greece, European banks swaps were tighter by ~2 bps w/w and 16 bps m/m. 

 

European Banking Monitor: Swaps Move Slightly Lower on the Week - financials CDS

 

Sovereign CDS – Sovereign swaps tightened across the board last week with the sole exception of the US. Irish sovereign swaps tightened by -13.5% (-6 bps to 41 ). Meanwhile, US sovereign swaps widened by 1 bps to 17.

 

European Banking Monitor: Swaps Move Slightly Lower on the Week - chart 2 sovereign CDS

 

European Banking Monitor: Swaps Move Slightly Lower on the Week - chart 3 sovereign CDS

 

European Banking Monitor: Swaps Move Slightly Lower on the Week - chart 4 soevereign cds

 

Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 1 bps to 20 bps.

 

European Banking Monitor: Swaps Move Slightly Lower on the Week - chart 5 sovereign CDS

 

 

Matthew Hedrick 

Associate

 

Ben Ryan

Analyst


 

 

 


MONDAY MORNING RISK MONITOR: FED FOCUS

Takeaway: The FOMC meeting Tues/Wed will be the main event this week. Expectations are for another $10 billion to be shaved from purchases.

Current Best Ideas:

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 19

 

Key Callouts:

All eyes on the Fed this week as the FOMC will host its next meeting Tues/Wed. Expectations are for a continuation in the taper, shaving another $10 billion from monthly purchases. On the one hand, the labor market data seems sufficiently strong to warrant further tapering. On the other hand, the housing data is showing continued signs of cooling off. If the Fed wanted to slow the rate of tapering, it's possible they could use housing as their foil.

 

One notable callout this week is commodity prices, which jumped almost 2% last week. We generally regard CRB price levels as a marginal tax on the consumer, slowing growth 3-6 months in the future when it rises and vice versa.

 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 1 of 12 improved / 4 out of 12 worsened / 7 of 12 unchanged

 • Intermediate-term(WoW): Positive / 5 of 12 improved / 2 out of 12 worsened / 5 of 12 unchanged

 • Long-term(WoW): Negative / 3 of 12 improved / 4 out of 12 worsened / 5 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 15

 

1. U.S. Financial CDS -  Swaps widened for 18 out of 27 domestic financial institutions. The large cap US banks were all wider w/w, though only by an average of 3 bps.

 

Tightened the most WoW: TRV, ACE, CB

Widened the most WoW: WFC, RDN, GS

Tightened the most WoW: GS, MS, C

Widened the most/ tightened the least MoM: WFC, HIG, RDN

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 1

 

2. European Financial CDS - Greek bank swaps continued to dive last week, falling an average of 70 bps on the week and dropping by an average of 116 bps on the month. Outside of Greece, European banks swaps were tighter by ~2 bps w/w and 16 bps m/m. 

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 2

 

3. Asian Financial CDS - Chinese bank swaps were wider on the week by an average of 6 bps. Japanese and Indian bank swaps were mixed and little changed.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 17

 

4. Sovereign CDS – Sovereign swaps tightened across the board last week with the sole exception of the US. Irish sovereign swaps tightened by -13.5% (-6 bps to 41 ). Meanwhile, US sovereign swaps widened by 1 bps to 17.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 18

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 3

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 4.6 bps last week, ending the week at 5.37% versus 5.41% the prior week.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.0 points last week, ending at 1878.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 6

 

7. TED Spread Monitor – The TED spread rose 0.2 basis points last week, ending the week at 19.9 bps this week versus last week’s print of 19.66 bps.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 7

 

8. CRB Commodity Price Index – The CRB index rose 1.9%, ending the week at 310 versus 304 the prior week. As compared with the prior month, commodity prices have increased 0.9% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 1 bps to 20 bps.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 2 basis points last week, ending the week at 2.60% versus last week’s print of 2.58%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 10

 

11. Chinese Steel – Steel prices in China fell 1.0% last week, or 33 yuan/ton, to 3177 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 215 bps, -3 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.9% upside to TRADE resistance and 1.2% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: FED FOCUS - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

OZM: Adding Och-Ziff to Investing Ideas

Takeaway: We are adding OZM to Investing Ideas.

Hedgeye is adding Och-Ziff Capital Management Group (OZM) to Investing Ideas. Financials analyst Jonathan Casteleyn will send out a report this week detailing our bullish case.

 

OZM: Adding Och-Ziff to Investing Ideas - och1



Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT

Takeaway: TGT - country wide POS malfunction. NKE introduces first product using ColorDry technology. KATE adds new head of International.

HEDGEYE RETAIL IDEAS LIST

 

*Added LULU to Best Idea list 6/15/14 (https://app.hedgeye.com/feed_items/36119-lulu-adding-to-best-ideas-list-as-a-long?page=1)
 

Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT - ideas

 

EVENTS TO WATCH

 

Wednesday (6/18)

  • H&M - Earnings Call: 2:00pm

 

COMPANY NEWS

 

TGT - Target says glitch at registers across U.S. not hacker-related

(http://www.startribune.com/business/263231891.html)

 

  • "Target Corp. confirmed Sunday night that a 'glitch' in its system had caused delays at registers at some of its U.S. stores, but added that it is not in any way related to a data security issue or a hacker."
  • "Customers around the country took to social media Sunday night reporting long check-out lines due to ­registers not working."
  • "Target did not elaborate on the exact problem or problems, but said it would provide updates as they became available. It also was not immediately clear how many stores were affected by the glitch."
  • "On Sunday night, Target employees tried to placate shoppers irritated by the long lines by handing out $3 coupons in some stores that said 'We are sorry for any delay you experienced in our store.'”

 

Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT - chart4 6 16

 

Takeaway: The POS glitch appears to have affected stores nationwide. Terrible PR for the company as it tries to recover from the data breach. What we can't figure out is, how this slipped through the cracks? Where's quality control, where's the IT support? TGT has some serious organizational issues to iron out and they won't be cheap to fix.

 

NKE - NIKE INTRODUCES FIRST PRODUCT WITH COLORDRY TECHNOLOGY

(http://nikeinc.com/news/nike-introduces-first-product-with-colordry-technology#/inline/30470)

 

  • "NIKE, Inc. today unveiled the ColorDry Polo in a palette of vibrant colors – Nike’s first product available to consumers using ColorDry technology that dyes fabric with zero water."
  • "It takes 30 liters of water to dye a T-shirt using traditional dyeing methods. ColorDry technology removes water from the dyeing process by using recycled CO2 to infuse fabric with intense, saturated color. The technology also saves energy and eliminates the need for added chemicals in the fabric dyeing process."
  • "The breakthrough of waterless dyeing is combined with another sustainable apparel innovation: recycled polyester. The ColorDry Polo is 100 percent recycled polyester, made from polyester manufacturing scraps and recycled plastic bottles that are washed, chopped into flakes and melted down to produce fine yarn used to create the polo's fabric. An equivalent of 16 recycled plastic bottles is used to make each polo."
  • "The ColorDry Polo release follows Nike’s February 2012 strategic minority investment in Dutch start-up, DyeCoo Textile Systems B.V...Last December, Nike announced the opening of a waterfree dyeing facility at its Taiwanese contract manufacturer Far Eastern New Century Corp."

 

Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT - chart2 6 16

 

Takeaway: Not new product, just new processes from NKE. We don't know if using old plastic bottles to make polo shirts will be margin accretive or help drive sales, but it does score the company serious brownie points in the sustainability camp. 


OTHER NEWS

 

KATE - Kate Spade Appoints Roy Chan

(http://www.wwd.com/business-news/human-resources/kate-spade-appoints-roy-chan-7729939)

 

  • "Kate Spade & Co. has appointed Roy Chan senior vice president of international, a new post."
  • "Chan is responsible for the strategic oversight and international expansion for Kate Spade New York, Kate Spade Saturday and Jack Spade. He reports to Craig Leavitt, chief executive officer of Kate Spade."
  • "Most recently, Chan was president of international at Jones Group. Before that, he was acting ceo of Band of Outsiders after serving as global chief operating officer of Japanese brand Evisu."

 

WMT - Wal-Mart India Woos Mom-and-Pop Stores to Tap $50 Billion

(http://www.bloomberg.com/news/2014-06-15/wal-mart-india-woos-mom-and-pop-stores-to-tap-50-billion.html)

 

  • "Wal-Mart Stores Inc. has opened an e-commerce website to supply goods to mom-and-pop merchants in India as the world’s largest retailer seeks to dominate a market it estimates will be valued at $50 billion by 2020."
  • "The Indian website is only for existing users of its members-only cash-and-carry stores and may help draw orders from small businesses more than 20 kilometers (12 miles) from outlets and that aren’t serviced by sales representatives, said the company’s chief executive for India Krish Iyer."
  • "Unlike the Sam’s club and other member-based store formats, India’s cash-and-carry services are only for mom-and-pop shops and other traders who need government tax documents to become members. Ordinary shoppers are not allowed to enter the stores or shop on this new website."

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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