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PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING

Takeaway: June pending home sales fell 1.1% m/m, and are down -7.2% year-over-year. The trend in housing data continues to soften.

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.

 

The table below has a lot of red on it. The only holdouts remain builder confidence - increasingly at odds with construction activity - and Existing Home Sales - a lagging indicator.

 

PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING - Compendium 072814

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table above represents the monthly average as opposed to the most recent weekly data point.

 

 

Today's Focus: June Pending Home Sales Index

The National Association of Realtors (NAR) today released its Pending Home Sales Index for the month of June.

 

Big picture, PHS drops 1.1% (not huge), but as we’ve noted, with cash sales still elevated and the regulation-catalyzed shift in the origination channel ongoing, the truth is probably somewhere in between PHS and Purchase apps. But with Purchase demand sliding further in July, New Home Sales flagging and HPI in full retreat, the broader trend in housing remains one of ongoing softness.

 

Pending Home Sales fell by 1.1% month-over-month to an index level of 102.7 (vs 103.8 in May). For reference, an index value of 100 corresponds to the average level of contract activity in the year 2001. While the sequential decline wasn't especially large at -1.1%, it marks a continuation of the negative year-over-year trends, falling -7.2%. Moreover, it reverses three positive monthly prints in a row. Consider that at this time last year, Pending Home Sales were growing at a rate of +12% y/y and today they're shrinking at -7%. 

 

Geographically, Northeast/South were worse sequentially, West/Midwest better MoM, but all regions remain negative on a YoY basis. 

 

 

PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING - PHS vs Purchase Apps

 

PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING - PHS Index   YoY TTM

 

PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING - PHS LT

 

PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING - PHS Regional June

 

PENDING HOME SALES DROP, ADDING TO THE SEA OF RED THAT IS HOUSING - PHS vs Case Shiller 18mo lag 

 

 

 

About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.

 

Frequency:

The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.

 

Joshua Steiner, CFA

 

Christian B. Drake


European Banking Monitor: Risk Premiums Tick Higher in Russia

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 - Russian bank, Sberbank, continued to see its swaps widen (+18 bps to 283 bps). Outside of Russia, however, there was slight tightening across Europe. The average EU bank tightened 2 bps on the week.

 

European Banking Monitor: Risk Premiums Tick Higher in Russia - chart 1 European Financials CDS

 

Sovereign CDS – Sovereign swaps tightened an average of 3 bps over the week. Portuguese swaps tightened the most, -11 bps, with Spain next at -3 bps. Swaps in the US were unchanged at 16 bps.

 

European Banking Monitor: Risk Premiums Tick Higher in Russia - chart 2 sovereign CDS

 

European Banking Monitor: Risk Premiums Tick Higher in Russia - chart 3 sovereign CDS

 

European Banking Monitor: Risk Premiums Tick Higher in Russia - chart 4 sovereign 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 widened by 1 bps to 14 bps.

 

European Banking Monitor: Risk Premiums Tick Higher in Russia - chart 5 euribor OIS spread

 

Matthew Hedrick 

Associate

 

Ben Ryan

Analyst

 

 



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MACAU ON TRACK FOR ANOTHER NEGATIVE GROWTH MONTH

A down low to mid single digit month is in the cards for July

 

 

Table revenue averaged HK$885 million per day in the 4th week of the month, down 11% from the comparable week of 2013.  We are hearing that some properties (Galaxy, MGM, MPEL) may have experienced lower than normal hold over the past 7-14 days.  Peninsula properties was hit particularly hard by low hold.  Mass remains strong although we think June's deceleration was not an anomaly.  

 

With 4 days left in the month, we expect July GGR to fall low to mid-single digits YoY.

 

In terms of market share, Wynn, LVS, and Galaxy are leading the way when compared to recent trend.  Indeed, Galaxy is the only Macau stock we like on the long side currently.  MPEL and MGM are both tracking below recent trend.

 

As for the upcoming Cotai projects, we continue to believe Galaxy's Phase 2 expansion may be the only new property to open in 2015.  Parisian (LVS) construction remains stalled while Macau Studio City's (MPEL) construction timetable may also suggest an early 2016 opening.  Parisian remains stalled while Sand China Limited awaits a full construction permit.  Historically, we understand operators began construction after filing for permits but prior to actual award of such permits.

 

MACAU ON TRACK FOR ANOTHER NEGATIVE GROWTH MONTH - 1

 

MACAU ON TRACK FOR ANOTHER NEGATIVE GROWTH MONTH - 2


Just Charts - Into the Heart of Earnings Season

INVESTMENT IDEAS

The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list).  We intend to update this table regularly and will provide detail on any material changes.

 

Just Charts - Into the Heart of Earnings Season - z. idesa

EVENTS THIS WEEK

7/28/14 TSN Earnings Call 8am EST

7/29/14 RAI Earnings Call 9am EST

7/29/14 HLF Earnings Call 11am EST

7/30/14 SODA Earnings Call 8:30am EST

7/30/14 REV Earnings Call 9:30am EST

7/30/14 ENR Earnings Call 10am EST

7/30/14 KRFT Earnings Call 5pm EST

7/30/14 SAM Earnings Call 5pm EST

7/31/14 NWL Earnings Call 8am EST

7/31/14 AVP Earnings Call 9am EST

7/31/14 K Earnings Call 9:30am EST

7/31/14 CL Earnings Call 11am EST

8/1/14 PG Earnings Call 8:30am EST

8/1/14 CHD Earnings Call 10am EST

8/1/14 CLX Earnings Call 1:15pm EST

 

 

WEEK-OVER-WEEK PERFORMANCE

Consumer Staples fell -0.9% week-over-week versus the broader market (S&P500) flat.  XLP is up 4.2% year-to-date versus the SPX at 7.0%.

 

Positive Divergence:  HLF 8.6%; SODA 7.1%; DPS 3.5%; HAIN 3.1%; MJN 2.2%

Negative Divergence:  TUP -11.6%; DF -8.0%; KMB -4.2%; RAI -3.1%; CLX -3.0%

RECENT NOTES 

 From a quantitative set-up XLP broke its immediate term TRADE duration last week and is now bearish, while the intermediate term TREND duration remains bullish.

 Just Charts - Into the Heart of Earnings Season - 2

 

The Hedgeye U.S. Consumption Model shows 7 of the 12 U.S. Economic Indicators flashing green.

 Just Charts - Into the Heart of Earnings Season - 3

 

Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating, Q2 2014 theme of #ConsumerSlowing, and Q3 2014 theme of #Q3 Slowing
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.3x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index (rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months, but rose to 37.6 versus 37.5 in the prior week

Just Charts - Into the Heart of Earnings Season - 4

Just Charts - Into the Heart of Earnings Season - 5

Just Charts - Into the Heart of Earnings Season - 6

 

QUANTITATIVE SETUP

In the charts below we look at the largest companies by market cap in the Consumer Staples space from a quantitative perspective.

 

BUD – bullish TREND support = 110.07

Just Charts - Into the Heart of Earnings Season - 7

 

DEO – bearish TREND resistance = 126.32

Just Charts - Into the Heart of Earnings Season - 8

 

KO – bullish TREND support = 40.88

Just Charts - Into the Heart of Earnings Season - 9

 

PEP – bullish TREND support = 88.15

Just Charts - Into the Heart of Earnings Season - 10

 

GIS – bullish TREND support = 52.44

Just Charts - Into the Heart of Earnings Season - 11

 

MDLZ – bullish TREND support = 36.99

Just Charts - Into the Heart of Earnings Season - 12

 

KMB – bearish TREND resistance = 110.91

Just Charts - Into the Heart of Earnings Season - 13

 

PG – bearish TREND resistance = 80.31

Just Charts - Into the Heart of Earnings Season - 14

 

MO – bullish TREND support = 40.41

Just Charts - Into the Heart of Earnings Season - 15

 

PM – bearish TREND resistance = 86.11

Just Charts - Into the Heart of Earnings Season - 16

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst

 

 


MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES

Takeaway: Bond market investors continue to seek higher ground, as treasury yields compress and junk bond yields rise.

Current Best Ideas:

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 19

 

Key Callouts:

Areas of intermediate-term stress remain rising Sovereign CDS (+9 bps m/m to +82 bps), rising junk bond yields (+34 bps m/m to 5.66%), compressing US yield spreads (2-10 spread -9 bps m/m to 198 bps), and rising Chinese interbank rates (+34 bps m/m to 3.31%).

 

Bigger picture, our view remains that ongoing 2H14 macro headwinds from falling rates and decelerating home prices will continue to put pressure on the Financials complex.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 3 of 12 improved / 1 out of 12 worsened / 8 of 12 unchanged

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

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

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 15

 

1. U.S. Financial CDS -  The large cap US banks and consumer finance companies were slightly wider on the week, rising by an average of 3 bps. The insurance complex, however, was tighter on the week where spreads compressed by an average of 2 bps. 

 

Tightened the most WoW: MMC, ACE, AON

Widened the most WoW: GS, COF, CB

Widened the least/ tightened the most WoW: UNM, XL, AON

Widened the most MoM: MBI, MTG, AGO

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 1

 

2. European Financial CDS - Russian bank, Sberbank, continued to see its swaps widen (+18 bps to 283 bps). Outside of Russia, however, there was slight tightening across Europe. The average EU bank tightened 2 bps on the week.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 2

 

3. Asian Financial CDS - Swaps tightened at Indian banks by an average of 11 bps, while the rest of Asia was largely unchanged.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 17

 

4. Sovereign CDS – Sovereign swaps tightened an average of 3 bps over the week. Portuguese swaps tightened the most, -11 bps, with Spain next at -3 bps. Swaps in the US were unchanged at 16 bps.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 18

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 3

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 4 bps last week, ending the week at 5.66% versus 5.70% the prior week.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 1.0 points last week, ending at 1884.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 6

 

7. TED Spread Monitor – The TED spread fell 1.3 basis points last week, ending the week at 20.6 bps this week versus last week’s print of 21.9 bps.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 7

 

8. CRB Commodity Price Index – The CRB index rose 0.5%, ending the week at 298 versus 297 the prior week. As compared with the prior month, commodity prices have decreased -4.4% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 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 widened by 1 bps to 14 bps.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 7 basis points last week, ending the week at 3.31% versus last week’s print of 3.24%. 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: BATTENING DOWN THE HATCHES - 10

 

11. Chinese Steel – Steel prices in China fell 0.6% last week, or 18 yuan/ton, to 3126 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: BATTENING DOWN THE HATCHES - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 198 bps, -3 bps tighter than a week ago and is down 9 bps month-over-month. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.0% upside to TRADE resistance and 0.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: BATTENING DOWN THE HATCHES - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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