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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 17, 2014


As we look at today's setup for the S&P 500, the range is 26 points or 1.14% downside to 1959 and 0.17% upside to 1985.                                  

                                                                                             

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.03 from 2.04
  • VIX closed at 11 1 day percent change of -8.03%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Housing Starts, June, est. 1.020m (prior 1.001m)
  • 8:30am: Init Jobless Claims, wk 7/12, est. 310k (pr 304k)
  • Continuing Claims, week of July 5, est. 2.580m (prior 2.584m)
  • 8:30am: Building Permits, June, est. 1.03m (prior 991k)
  • 9:45am: Bloomberg Consumer Comfort, July 13, (prior 37.6)
  • 9:45am: Bloomberg Economic Expectations, July (prior 48.5)
  • 10am: Philadelphia Fed, July, est. 16 (prior 17.8)
  • 1:35pm: Fed’s Bullard speaks in Owensboro, Ky.

 

GOVERNMENT:

    • 6am: Quinnipiac poll results incl. Obama’s approval rating, 2016 presidential race
    • 10am: House Budget Cmte hearing Obama Overseas Contingency Ops. funding request
    • 10am: GM CEO Mary Barra before Senate Commerce panel on consumer protection, product safety and insurance
    • 10am: Justice Dept. officials at Sen. Foreign Relations Cmte on minors at the border
    • 10:30am: Senate Appros. Cmte marks up defense spending bil
    • 11:30am: House Speaker John Boehner holds news conference
    • U.S. ELECTION WRAP: Polls in Iowa, N.C., Mich., Colo.; 2Q Money

 

WHAT TO WATCH:

  • U.S. expands Russia sanctions to banks, energy, weapons cos.
  • Western cos. examine Russia businesses as sanctions spread
  • Putin says U.S. sanctions leading relations to “dead end”
  • Liberty Global buys ITV stake from BSkyB for $824m
  • Largest-ever Microsoft firings expected today: NYT
  • Starbucks sees more Apple-like shops; planning new flagship
  • Ford to debut 25 new models in Africa, Middle East by 2016
  • GM CEO Barra to face congressional questions for fourth time
  • >2m GM cars with same ignition switches safe: Reuters
  • VW planning task force to tackle technology updates in cars
  • S&P gain has investors worrying about bubble: Bloomberg poll
  • U.S. foreclosures drop to level preceding mortgage bust
  • LinkedIn reaches settlement with hackers over fake profiles
  • Microsoft says Xbox sales double in June after price cut

 

AM EARNS:

    • Alliance Data Systems (ADS) 7:30am, $2.73
    • AutoNation (AN) 6:15am, $0.87
    • Baker Hughes (BHI) 6am, $0.90 - Preview
    • Baxter Intl (BAX) 7am, $1.22 - Preview
    • Blackstone (BX) 7am, $0.72
    • Canadian Pacific Railway (CP CN) 7:30am, C$2.09 - Preview
    • Cypress Semiconductor (CY) 8am, $0.12
    • Danaher (DHR) 6am, $0.94
    • Dover (DOV) 7am, $1.28
    • Fairchild Semiconductor (FCS) 7:30am, $0.11
    • Fifth Third Bancorp (FITB) 6:30am, $0.43
    • KeyCorp (KEY) 6:30am, $0.26
    • M&T Bank (MTB) 8:01am, $1.90
    • Mattel (MAT) 6am, $0.18 - Preview
    • Morgan Stanley (MS) 7:15am, $0.56 - Preview
    • Philip Morris Intl (PM) 6:59am, $1.24 - Preview
    • PPG Industries (PPG) 8:11am, $2.78
    • Sherwin-Williams (SHW) 7am, $2.93
    • Snap-on (SNA) 7am, $1.68
    • Sonoco Products (SON) 7:30am, $0.65
    • UnitedHealth (UNH) 6am, $1.26 - Preview
    • Webster Financial (WBS) 7:55am, $0.51
    • WW Grainger (GWW) 7:30am, $3.10

 

PM EARNS:

    • Advanced Micro Devices (AMD) 4:15pm, $0.03
    • Athenahealth (ATHN) 4:01pm, $0.22
    • Capital One Financial (COF) 4:05pm, $1.82
    • Celanese (CE) 5pm, $1.24
    • Google (GOOG) 4:02pm, $6.25 - Preview
    • Intl Business Machines (IBM) 4:07pm, $4.31 - Preview
    • People’s United Financial (PBCT) 4:03pm, $0.20
    • Resources Connection (RECN) 4pm, $0.18
    • Schlumberger (SLB) Aft-Mkt, $1.36 - Preview
    • Seagate Technology (STX) 4:01pm, $1.10
    • Skyworks Solutions (SWKS) 4:15pm, $0.80
    • Stryker (SYK) 4pm, $1.08 - Preview

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Gains on Russia Sanctions as Palladium Reaches 13-Year High
  • Thai Sugar Output Seen Climbing to Record as Farmers Shun Rice
  • LNG Cargoes to U.K. Drive Biggest Price Drop Since ’09: Freight
  • Palm Reserves in Indonesia Drop to Two-Month Low as Output Falls
  • WTI Crude Rises to Four-Day High on Stockpile Drop; Brent Gains
  • China Three Years Late on Installing Offshore Wind Farms: Energy
  • Rio CEO Sees Iron Ore Trading Around $100 as Profit Gains
  • Rubber Rises Most in Three Weeks as China Demand Concerns Ease
  • Most Industrial Metals Drop for Second Day on Rising Supplies
  • Corn Drops as U.S. Crop Outlook Boosts Global Supply Prospects
  • India June Coal Imports Rise 4% Y/Y to 16.1 Mln Mt: Interocean
  • China June Copper Output Rises 1.4% M/M to 623,000 Tons
  • China Grid-Related Copper Demand Seen Near 15% of Total: Goldman
  • California Almonds Saved by Using Water for Veggies: Commodities

 

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


LVS 2Q 2014 CONF CALL

Not one of LVS's finest. Even on a hold adjusted basis, Macau EBITDA was disappointing. Singapore estimates look like they are heading lower - the macro isn't good.

 

 

CONF CALL

  • Pleased with quarter
  • "Includes the impact of the initiation of a "14th month" special bonus accrual for non-management employees in Macao. Absent this accrual, Adjusted Property EBITDA would have been approximately $29 million higher both in Macao and on a consolidated basis, and Adjusted Earnings per Diluted Share would have been $0.03 higher."

MACAU

  • VIP experiencing a slowdown
  • 3 VIP headwinds mentioned by Adelson:  
    • Tightening liquidity conditions in Chinese economy and junket system
    • Real estate market slowdown 
    • General uncertainty and caution in economy
    • We also think disappearance of Huang Shan who owed ~$1.3 billion had an impact.
  • LVS gaming revenue mix:  44% VIP/ 56% non-VIP
  • Market gaming revenue mix:  60% VIP/ 40% non-VIP
  • World Cup 'clearly' had an impact on June GGR
  • June Macau Revenues were -20% relative to May similar to 2010
  • Continue to invest in premium direct 
    • Experienced lower VIP decline than junket volume
  • Reduced VIP capacity by 28%; increased mass table capacity by 14%
  • Impacted by low hold in premium mass segment
  • Competitors lag behind on the integrated resort model
  • Four Seasons mall:  highest grossing mall per sq ft in the world ($5,500); Bal Harbour Miami second place at $3,500
  • Confident LVS will continue to grow

SINGAPORE

  • Invest in premium mass 

OTHER

  • Interest in Japan/Korea 
  • Bought back $320m of stock in Q2

 

Q & A

  • VIP only 17% of EBITDA 
  • Macau VIP:  back end consumer demand is soft
  • Have seen more VIP Chinese customers into Vegas
  • Macau:  Pulling back on VIP credit but not concerned from a risk perspective 
  • Have enough money for current stock repurchase program 
  • World Cup impacted mass business, especially in June; poor mass mix -  premium mass (higher mass mix %)  did fine but margins a little lower than pure mass
  • Q3 will be better
  • Premium mass demographics has some overlap with VIP demographics but ultimately, is a different audience
  • Premium mass has 38% margins
  • Want to increase more room comps
  • Singapore relationship: the bigger the hold, the lower the rolling chip volume
    • What about Q1 2012 where hold was 3.6% and volume grew 25%?
    • What about Singapore macro? It's deteriorating. 
  • Singapore:  cautious on lending credit
  • Dragons Palace:  will take 3 months to fully ramp
  • Macau competitors can't focus on mass because they don't have enough tables
  • Macau:  no margin erosion
  • Parisian: construction has stopped, pending govt approvals to be received shortly.  Planned opening date unchanged at end of 2015.
  • Smoking ban:  'VIP' definition still unclear.  All VIP rooms will be allowed smoking.  Believe public estimates 2-3% impact on revenues.
  • St. Regis:  will open in Summer 2015
  • Four Seasons condo titles:  licensing process with Macau govt
  • Board approved construction to spend $33m to put smoking facilities in
  • Four Seasons mall:  Dont' need the money from selling Four Seasons right now.  More focused on Parisian. No restrictions from government.
  • Would love to build another hotel in Singapore
  • CFO search:  no external hire


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Poll of the Day Recap: 59% voted that the VIX will stay asleep through Labor Day

“Global asset markets continue to be in deep REM sleep,” Daryl Jones, Hedgeye Director of Research wrote in today’s Morning Newsletter. “U.S. equity volatility is literally at an all-time low and well below the 20-year mean of 20.05.”.

 

As we recently highlighted in our Q3 Macro Themes presentation, volatility has been at generational lows across asset allocations and continues to tick lower. U.S. equity volatility is literally at an all-time low and well below the 20-year mean of 20.05. Fixed income volatility is also literally at an all-time low and the current reading is 54.03, which is in the 1.5% percentile versus the long run mean of 99. And JPM Global foreign exchange volatility index is at 5.45 versus the long run mean of 10.6. We see the risk increasing the more you push the ball under water.

 

Poll of the Day Recap: 59% voted that the VIX will stay asleep through Labor Day - Lion sleeping
 

In today’s poll we asked: Is volatility ($VIX) going to wake up or stay asleep through Labor Day?

 

At the time of this post, 59% voted that the VIX will stay asleep through Labor Day, 41% believe it will wake up.

 

 


Cartoon of the Day: A Broken Economy

Cartoon of the Day: A Broken Economy - Yellen duct tape 7.16.2014

 

Janet Yellen isn’t the fix for what ails the US economy.

 

SUBSCRIBE TO CARTOON OF THE DAY.

 


BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE

Takeaway: Mortgage demand plunges while Builders get some of their swagger back. The conflicting datapoints continue to grow.

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.

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Compendium 071614

 

Today's Focus: July NAHB HMI (Builder Confidence Survey) & MBA Mortgage Applications

 

July NAHB HMI 

This month (July), the NAHB’s HMI, which measures builder confidence, rose to 53, a gain of four points from June's print of 49 (which was not subject to any revision) and the highest reading in six months. For reference, the last two months have seen a total improvement of 8 points.

 

  • Sub-Indices:  All 3 sub-indices increased MoM although expectations registered a disproportionate increase, gaining +7pts sequentially and sending the “optimism spread” back to its highest levels since 3Q12. 
  • Regional:   All regions showed sequential improvement for a 2nd straight month.

 

NAHB vs. Pending Home Sales:  On a LT basis, the correlation between NAHB and Pending Home Sales is strongest on a coincident basis.  However, since 2010 (when Pending bottomed) the strongest relationship is with Pending leading changes in Builder Optimism by ~2 Months (which makes temporal sense as the NAHB HMI is released ~2 months ahead of Pending, with Pending offering a cue/anchor for builder expectations).

 

Given the autocorrelation and colinearity in housing metrics, resolving the growing divergence between Pending & Purchase Apps and discerning the true trajectory in purchase demand will become increasingly important.  

 

Turning to the commentary, note the stark and somewhat whimsical reversal of spin with respect to the numbers the last couple months:   


NAHB Chairman Kevin Kelly had this to say on the July reading: 

“This is the first time that builder confidence has been above 50 since January and an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace

 

For reference, here's what Kevin Kelly said a month ago:

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:  

“An improving job market goes hand-in-hand with a rise in builder confidence. As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.”

 

And here's what David Crowe said a month earlier: 

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.”

 

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - NAHB LT

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - NAHB Sentiment vs Pending Home Sales

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - NAHB vs PHS 2Mo Lag Scatter

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - NAHB Regional

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - NAHB SubIndices

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - NAHB OPTIMISM SPREAD

 

 

MBA Mortgage Applications 

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended July 11. 

 

In short, it’s getting increasingly interesting to start 3Q.  While HPI remains in conspicuous deceleration, the divergence between various measures of housing activity are growing more stark – is demand really in discrete retreat, is the latest high frequency data reflective of peri-holiday related volatility, is the shift in non-bank origination really that remarkable?

 

Mortgage demand softened significantly in the latest week with the composite index declining -3.6% in the post-holiday week with the purchase index declining -7.6% WoW .

 

  • Purchase Apps:  Purchase Demand declined -7.6% WoW, posting its largest sequential drop since February 2013.  The index dropped to its lowest level since February, completely bypassing the 170-level to close at 167.8 (181.7 prior). The YoY rate of change deteriorated to -17.2% from -9.9% prior with the early 3Q data tracking at -2.4% QoQ.  Historically, outside of 2009 and amidst the throes of the recession, purchase demand hasn’t shown any notable volatility in the week following the july 4th holiday, suggesting the decline in purchase activity is authentic. 
  • Refi:  Refi activity was largely unremarkable WoW, declining -11 bps alongside little change in 30Y rates.  
  • 30Y FRM:  30 year interest rates on conventional fixed rate contracts were largely unchanged WoW, increasing to 4.33% from 4.32% according to MBA data. Rates remain near the lowest levels since May of last year. 

 

Here are a few other recent anecdotals:

  • Lumbar Liquidators: In a nutshell, the stock is down ~25% in the last week as 2Q14 Comps came in ~14% below analyst estimates and the company aggressively guided lower. Here's what management had to say: 
    • "Customer traffic to our stores was significantly weaker than we expected, particularly in geographic areas severely impacted by the unusually harsh weather in the first quarter. The improvement in customer demand we experienced beginning in mid-March did not carry into May, and June weakened further. Our reduced customer traffic has coincided with certain weak macroeconomic trends related to residential remodeling, including existing home sales, which have generally been lower in 2014 than the corresponding periods in 2013. We now believe the prolonged purchase cycle associated with our customers' discretionary, large-ticket home improvement projects is likely to be delayed for some customers into the fall flooring season, and for others, into spring of 2015."

 

  • Inside Mortgage Finance: Paul Muolo, publisher of Inside Mortgage Finance, had this to say recently (7/11):
    • This week, when Inside Mortgage Finance published its preliminary origination forecast for the second quarter, we caused a bit of whiplash among certain analysts, who believe there’s no way the number can be right. But we’re sticking by the preliminary $310 billion figure, which represents a 32 percent sequential gain. From what we’ve been hearing, the purchase-money business is picking up and more depositories are funding jumbos, keeping the loans in portfolio. We should point out that Friday morning Wells Fargo reported that its production volume jumped 31 percent in 2Q. Wells, by the way, has been doing a little worse than the overall market the past several quarters… 
  • Phoenix Housing Market: We recently read an interesting summary of the Greater Phoenix Housing situation - the report can be found here (h/t ZH). To summarize, sales are way down and largely because the investor base has flown the coop. Historically, prices follow demand by a 12-18 month lag as it takes time for reality to set in with sellers. We regard Phoenix as proxy for all markets that were similarly inflated by institutional demand.
    • Sales of single family homes were down 19% in May 2014 from May 2013 while sales of townhouse/condos were down 20%.
    • Single family home sales decreased year over year across every sector:
      o Normal re-sales (down 2%)
      o New homes (down 4%)
      o Investor flips (down 53%)
      o Short sales and pre-foreclosures (down 73%)
      o Bank owned homes (down 20%)
      o GSE (Fannie Mae, Freddie Mac, etc.) owned homes (down 44%)
      o HUD sales (down 76%)
      o Third party purchases at trustee sale (down 59%) 
    • However the new home sector did grow 22% year over year in Pinal County

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Purchase   Refi YoY 2

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Purchase Qtrly

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Purchase Apps LT w Summary Stats

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Composite Index Qtrly

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Composite LT w Summary Stats

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - 30Y FRM

 

BUILDERS FEELING BETTER, BORROWERS FEELING WORSE & OTHER HOUSING TALES OF LATE - Pending vs Purchase Apps updated 

 

 

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.

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake


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