Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
I love how political the monthly Jobs Report gets. Everyone has their own spin. Unfortunately, not everyone has math or facts, which are one and the same. Let the numbers talk.
To that end, please see the charts and commentary below which should help you contextualize today's February jobs report.
Month-over-month Nonfarm Payrolls growth accelerated on a sequential basis, but are decelerating on a trending basis:
That deceleration is from a really high growth rate, however. The latest 3MMA is in the 88th percentile of all readings over the last 10 years, which compares to the 95th percentile recorded in the prior month.
On a Year-Over-Year basis, Total Employees on Nonfarm Payrolls are up 2.39%, the fastest rate of growth since MAY '00. The 2yr average of 2% is the fastest since NOV '00.
It would not behoove you to see MAY/NOV 2000 and say, "Well that was it for the market/economy." That was in a clear down-cycle. We are still in up-cycle mode.
How do we know? Well, A) the data is still accelerating. And B) the leading indicator for employment growth continues to support that conclusion:
In research, #math > storytelling. In risk management, #process > hope. In the seeking of context, @Hedgeye > the alternative.
This note was originally published March 04, 2015 at 21:32 by Hedgeye Industrials Sector Head Jay Van Sciver.
Outside of housing/construction, much of the recent industrial data point to weakening activity. Some of the deceleration may relate to broader deflationary trends, such as weaker resource-related capital spending.
ISM New Orders
While still in expansion territory, both the Manufacturing and Nonmanufacturing New Orders readings weakened.
Intermodal Rail Traffic
While weather and port disruptions play a part, the recent meaningful declines in intermodal rail traffic are the first since the great recession.
U.S. Manufacturers New Orders
While we typically track the more timely ISM Manufacturing New Orders readings, other measures also point to a deceleration in orders. Ex-Defense also shows YoY declines.
Crude-by-rail volume showing slight year-on-year declines in recent weeks.
Single Family Building Permits
Residential construction/housing appears to be positioned well into 2015.
Architectural Billings Index
While the ABI points to strengthening activity through much of 2015, the recent 49.9 reading points to a deceleration into 2016. Of course, by then no one will remember where ABI was 11 months prior.
Public Nonresidential Construction Spending
After several years of being a drag on nonresidential construction, public sector spending is showing solid signs of growth.
Inventory to Shipments Ratio
Inventory is building relative to shipments, which is typically a negative indicator for higher cost transportation spending. It is also typically associated with weaker economic activity.
IATA International Airfreight FTK Growth
Even airfreight growth seems to be slowing, which is surprising given recent declines in fuel costs. (Freight Ton Kilometers = FTK)
Truck Demand Index
While some of this may be weather/port related, it is not a positive indicator for heavy trucks.
US Truck Backlog to Build
From a trading perspective, we look to enter truck OEMs when this reading is low. Recent slowing may portend an entry opportunity for that group.
Brazil Heavy Truck Registrations
A stronger dollar and deflationary trends are not typically favorable for Industrial top-lines.
AWP Value Index
This series seems to be decelerating. (AWP = Aerial Work Platforms)
Business Jet Flights YoY%
Growth appears to be slowing in recent months, although the January decline may be partly weather related.
China HSBC PMI
Ending on a more positive note, the HSBC China Manufacturing PMI has moved into positive territory.
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Takeaway: Weather wins the day in February. MidWest, South, and East Coast hit the hardest. But even well diversified players like GPS feel the pain.
February Comps -
Takeaway: Weather was an issue last year during February, and it's been equally as bad this year. The 2-yr trend in the ICSC has been decidedly negative since the year started drawing essentially a straight line from 3% to 2% over the 9-weeks to date.
That manifested itself in the numbers we saw reported on Wednesday and Thursday where 2/3 of the companies who still report monthly sales numbers missed expectations by an average of 450bps (240bps if you exclude CATO). Not only that, but every company with the exception of BKE and ZUMZ posted a sequential decline on the 2yr trend line. The average decline for the 7 companies equaled 320bps.
We looked at the regional weighting for each retailer to see if there was any geographic areas that made it through February in a healthy position. It's hard to give any part of the country the benefit of the doubt when GPS reported a -4% against a -7% LY, but based on what we found it looks like the South and MidWest were hit hardest. We'd add the East Coast in there as well even though there was no company with a bias to that region because we've been trudging through the snow here in CT for the better part of 6 weeks.
We have 1 more month of easy compares until comps get more difficult starting in April. Cheap gas has been a tailwind YTD, but we should point out that the average price for a regular gallon of gas is up about 12% since the first week of January according to the EIA and the YY growth rate is 460bps behind where it was when January kicked off.
On the positive side, employment numbers looked good this morning and averages wages ticked up another 20bps. That could continue to help especially on the lower end, but it appears for now that weather is winning the battle.
Ports Gridlock Reshapes the Supply Chain
Sephora in big omnichannel push: beacons, in-store augmented reality and more
LL - Senator calls for Lumber Liquidators investigation
APP - American Apparel workers create coalition
Bonobos to open 4,000-sq.-ft. flagship in Manhattan
COST - Exclusive: Costco working to end use of human antibiotics in chicken
Euro...the collapse of a currency, testing 1.09 -1.08 literally straight down and in the face of that the USD is going straight up here. This only reinforces our Global #Deflation view (which is largely instructed from our USD view which is instructed by our European and Japanese policy view). To be clear we don’t think this will create any economic value.
As the YEN tumbles look at the Nikkei go, up almost 9% year-to-date up 1.2% overnight. The Yen has burned through the 1.20 line, intermediate term targets are 1.05 and 1.35 for the Euro and the YEN respectively and those targets look firmly intact at this point.
We have been saying this all along, on a good jobs report number the UST 10YR hits the top end of the risk range which is 2.18 on a bad number it will see 20-25 basis points of downside. The jobs report was good, which is really not congruent with every other piece of jobs data or economic data that we look at. Either way a good jobs number is bullish for bond yields in the very immediate term.
|FIXED INCOME||30%||INTL CURRENCIES||10%|
iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.
Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.
Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.
VIDEO: Maria, Leo, and I on #Bubbles - Alibaba Arguably “Biggest IPO Bubble In World History" | $BABA https://app.hedgeye.com/insights/42773-mccullough-alibaba-arguably-biggest-ipo-bubble-in-world-history
The most unprofitable item ever manufactured is an excuse.
A member of the Bush family has now been on the cover of Time magazine 51 times.
Tickers: NCLH, WYNN, LVS, MGM, RCL, CCL
NCLH- Star NCLC and TPG Viking Funds, two of NCLH's major shareholders, plan to sell a combined 12.5m ordinary NCLH shares in a secondary offering.
Star NCLC, a Bermuda company, is a wholly owned subsidiary of Genting HK. Genting HK owns NCLH’s ordinary shares indirectly through Star NCLC. Genting HK is currently NCLH's largest shareholder, with a 25% stake. Following the sale, its holdings would go to 22.1%. TPG Viking Funds' stake, meanwhile, would go to 4.3% from 7%. Apollo, with a 24% share, will become NCLH's principal shareholder.
Norwegian will not sell any ordinary shares in the offering and will not receive any of the proceeds from the offering. The total number of Norwegian ordinary shares outstanding will not change as a result of the offering.
Takeaway: While it wasn't entirely unexpected, this has been a risk for NCLH. The question is whether Genting/TPG will continue selling shares later this year.
WYNN - Forefront of Macau Gaming (FMG) Cloee Chao said Wynn Macau sent a text message to all dealers and supervisors on Wednesday morning, reminding them that ‘there are a small number of day-off quotas available for applications for the morning, afternoon and night shifts on between March 9 and March 15.’
Ms. Chao told Business Daily that it was the first time Wynn Macau had encouraged workers to take unpaid leave since the financial tsunami of 2008.
Takeaway: Can't fire but gotta reduce costs
LVS - A Las Vegas judge ordered First Cagayan Leisure & Resort to pay LVS $2 million for using the Sands trademark and another $150,000 fine for violating copyright laws. The complaint says the websites falsely affiliate themselves with the Las Vegas Sands Corporation to lure prospective gamblers to overseas online casinos.
MGM - will break ground on Springfield casino on March 24
WYNN - Elaine Wynn has launched a bid to retain a seat on the board, who is trying to oust her.
Takeaway: The official statement for an upcoming board fight. We think the Wynn board has a point - there is a conflict of interest
Mohegan Sun - plans to add a $120 million, 400 room hotel tower. Mohegan says this project would help it recapture 500,000 potential room nights it turned away last year.
RCL - Celebrity's 'Spring into Savings' promotion is available on more than 300 sailings with savings of up to $1,000 per booking. Plus, vacationers who choose a standard veranda stateroom in Europe, or Concierge Class, AquaClass and Suite Class accommodations in Europe and other destinations, will receive the all-inclusive offer—free classic beverage package, free gratuities and up to $300 to spend on board.
For a total combined value of up to $3,000, travelers must book during March.
'Spring into Savings' is available for a limited time on new individual and select group reservations made through March 31 for sailings from May 2015 to April 2016.
Takeaway: Note this promotion is geared towards European itineraries.
RCL - For 2016, Harmony of the Seas will sail the Caribbean from Port Everglades, Oasis of the Seas will shift to Port Canaveral and Bermuda will get calls from its first Quantum-class ship, Anthem of the Seas.
Oasis of the Seas and Allure of the Seas will sail a western Caribbean and two new eastern Caribbean itineraries in summer 2016, all seven nights from Port Everglades. Allure of the Seas will then be joined by the new Oasis-class ship, Harmony of the Seas, to offer a seven-night eastern and western Caribbean itinerary for winter 2016-17.
Oasis of the Seas, meanwhile, will reposition to its new winter home of Port Canaveral in central Florida, where a new terminal is being built to accommodate it. Oasis will alternative weekly eastern and western Caribbean cruises. And Rhapsody of the Seas will take over three- and four-night Bahamas cruises from Enchantment of the Seas, which shifts to Miami.
Takeaway: Caribbean will be more crowded and competitive in 2016
CCL - Seabourn Encore maiden voyage sells out in 2 days
Takeaway: Strong luxury demand is still there
Macau liaison chief - Central People’s Government Liaison Office Director Li Gang said in Beijing on Thursday that the gaming industry must not be sacrificed in return for economic diversification. Li Gang pointed out that the government will conduct a review of the gaming industry from the middle of this year.
Li Gang also said that the tightening of visa restrictions and the ongoing anti-graft campaign in the mainland were not necessarily the main reasons for the current drop in gaming revenue. However, he admitted that the central government’s anti-corruption drive did indeed deter some government officials from visiting Macau.
Li Gang said that economic diversification required a big effort from the government since it was “too easy” to earn money from the gaming industry. He also said that the local economy’s diversification would take between 20 and 30 years to complete, adding that the local government should strengthen its efforts to achieve this long-term goal.
Takeaway: Probably positive comments on the margin: gaming will not be sacrificed and the diversification timeline is long
Macau Gaming Employment Stats - At the end of the fourth quarter of 2014, the Gaming Sector had 58,524 persons engaged, up by 3.4% YoY; there were 25,752 dealers, up by 2.0% YoY.
In December 2014, average earnings (excluding bonuses and allowances) of full-time employees stood at MOP20,680, up by 8.2% YoY. Average earnings of dealers amounted to MOP18,000, up by 7.7% YoY.
Job vacancies totaled 841 at the end of 4Q 2014, down substantially by 1,145 YoY. There were 180 vacancies for dealers, down significantly by 884.
Takeaway: Employee costs will be higher again in 2015, despite the downturn.
Japan- Lawmakers in Japan are optimistic that a bill to create the framework to legalize casinos in Japan will be passed this year. However, they also agree that a major obstacle may still be the cautious stance of the Komeito Party, a key coalition member.
The administration of Prime Minister Shinzo Abe has already announced its support of the concept as a means to stimulate growth in the Japanese economy. The drafting of the bill is said to be at an advanced stage.
It is thought that there will be no visible progress until after the completion of the unified local elections on April 26, but thereafter the Abe administration would introduce the bill and seek to pass it in the current ordinary Diet session, scheduled to end on June 24.
Takeaway: Passage of Japan gaming is considered a long shot this year
Atlantic City - Golden Nugget has increased its budget for promotional gaming credits since four casinos closed last year. The average customers per day have risen from 3,000 to 5,000 said GM Tom Pohlman.
Horse racing - Handle on horse races fell 3.7% to $763.4 million in February, while the total number of races fell 3%, Equibase reported. For the first two months, handle is down 1.1%.
Takeaway: Horse racing hasn't done as well as the commercial casinos so far this year.
South Coffeyville, OK - The Cherokee have opened their $10 million casino in South Coffeyville. The casino has 300 slots.
IRS - The proposal, released this week by the IRS, suggests the reporting rules for winnings from gambling on slots, keno and bingo be reduced from $1,200 to $600. The agency set a 90-day period for the casino industry to respond to the suggested regulation changes.
Florida - Florida Lottery announced that Scratch-Off ticket sales for the week ending March 1, 2015, exceeded $91.7 million, the highest, single-week Scratch-Off sales of any lottery in the country.
Takeaway: Florida's Instant ticket sales was hot in 2014 and is off to a great start in 2015.
Hotel openings - Lodging Econometrics reported that new hotel supply growth bottomed in 2011 with the opening of only 347 Hotels/37,404 Rooms. Since then, new supply growth has been slow and incremental. New Hotel Openings were a paltry 412 in 2012, 488 in 2013 and 557 hotels with 63,352 rooms in 2014.
LE forecasts that just 726 new hotels will open in 2015 and 797 hotels in 2016. The sharpness of the decline and the prolonged nature of the economic malaise delayed the rekindling of hotel development and continues to cause sluggish supply growth.
Takeaway: Hotel supply growth will be kept under control in the near future
Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.
Takeaway: European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.
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