"The UST 10YR Yield is at 1.87%, down 31 basis points year-to-date as lower-for-longer continues to get priced in," Hedgeye CEO Keith McCullough wrote earlier today. "The German 10YR is at 0.07% and the Swiss 10YR is at negative -0.21% this morning.
In this brief excerpt from today’s institutional morning macro call, Hedgeye CEO Keith McCullough discusses the continuing descent of bond yields around the world.
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Takeaway: Eastern Med issues and worse non-US onboard spend accounted for lower yield guidance. Asia (ex China) also mixed. The momo is over.
- Anthem of the Seas has been 'quite profitable and generating strong returns'
- Quantum of the Seas bookings in China has been 'heartwarming'
- Double-Double program still on track
- Hedgeye is skeptical
- China now represents 6% of capacity at a higher level % of the company's profitability
- Bookings curve moved forward since they marketed sailings earlier than usual; thus, less need to offer late-minute discounts
- In March, adopted new policy that they will not offer late-minute discounting in North America (excluding 2-4 night itineraries). This may negatively impact short-term bookings but believe this is the right method over the long-term.
- Strength in close-in pricing in Caribbean boosted Q1. Caribbean capacity had 69%.
- Quantum had significantly higher premiums vs rest of fleet
- At this point, Booking and APDs are higher vs same time last year
- Previous guidance already incorporated better Caribbean pricing in Q2-Q4
- Continue to expect low single digit yield increase in Caribbiean sailing
- Europe: volumes slightly down vs 2014. Capacity up 5% YoY. Strength coming down Baltic/Med doing well. Eastern Med are soft, particularly Turkey. Still see mid-single digit yield increase in 2015.
- Asia: in 2015, capacity accounts for 15%. Asia itineraries, as a whole, has been trending well but individual itinerary's performance vary. Quantum is booked 80% for the summer 2015. 2016 is looking good as well.
- We agree. As we wrote in "RCL: HOT ASIA BOOKINGS", Quantum bookings have been stellar. But pricing performance is mixed particularly with the older fleet underperforming in non-China itineraries.
- Expect low to mid single digit yield increase.
- Lower Fuel consumption due to better fuel initiatives.
- 2Q 2015: capacity mix: 37% Caribbean, 25% Europe, 10% Alaska, 10% China
Q & A
- China: 66% more capacity in China this year. Good yield growth but not double digit growth this time around.
- Southeast Asia: yields are flattish.
- Australia: yields are up slightly
- Consumer pay bundled packages in non-US$
- Onboard rev will still have a record year
- 150bps change from Q2 -Q4 ; half of it on anticipation of weaker non-US onboard spend. Another half of it is on Eastern Med and new NA pricing pricing policy mentioned above
- Is new NA pricing policy shared by their competitors? They don't think so.
- Repositioning is great for Quantum but lower yields for everyone else who has repositioned.
- We've been concerned about the underperformance of the pre-2006 fleet.
- Why NCC ex fuel much higher in 2Q? mostly due to Quantum repositioning to China
- Relative to guidance in October 2014, currency impact -$0.59, +$0.54 fuel impact. Relative to guidance in Jan 2015, -$0.36 (-$0.15 (fuel), -$0.20 (FX).
- Committed to keeping costs down this year and next year
- 2-4 itineraries is only a small portion of their NA itineraries
- FX impact onboard spend depends on exposure (see chart above)
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Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
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
European Financial CDS - Swaps widened almost universally among European banks last week as a lack of progress in Greek bailout negotiations racked investors' nerves.
Sovereign CDS – Sovereign Swaps mostly widened over last week. Italian, Spanish, and Portuguese swaps led the way, widening by 25 bps to 133, 19 bps to 105, and 30 bps to 162, respectively.
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 was unchanged at 12 bps.
Takeaway: Changing up idea list this week: NKE, CRI, DKS, M, GES, ANF, GIL, SKX
RETAIL IDEA LIST
CHANGES THIS WEEK:
NKE: Moved Nike back to Core Longs from our Bench. It's expensive and we're concerned about management changes, but the reality is that it could take years before anything management-related manifests in results. Until then, it's one of the few names in consumer that looks positive over every investment duration.
CRI: Off our short-bench. It's been sitting there for three quarters, which is way too long to wait for a catalyst. We have a negative bias toward the business model, but can't get an edge on timing.
DKS: Off of our short list. As we highlighted in our note last week, this is the first time in a while where DKS management set expectations at a level that are actually achievable.
M: We bumped this down from the core short list to the bench. This one is all about timing. We still think that the group (including M) will have a very ugly 2H. But for the next few months the catalysts are likely positive. And with M, unlike KSS or JCP, there's real estate value support.
GES: Off our short list. The stock is down 36% over the past year, and year-to-date short interest more than doubled to 24% of the float. Are numbers still too high? Probably. But with margins already down to 6% from 16% in three years and $5.60 per share in net cash on the books, this short has mostly played out.
ANF: We were about to take this off our long bench as we couldn't find a convincing angle aside from the management/board changes. But with 32% of the float short, this company could do something right -- even if by mistake -- and the stock will rally. Still need to vet this one.
SKX: A company that has done a lot right in recent years. But it was one of the worst looking names in our SIGMA screen this past week.
EVENTS TO WATCH
NKE - Nike signs Jameis Winston and Marcus Mariota
Takeaway: UA has the rights to 'The Combine' apparel (shirts, shorts, and socks) which explains why the top 2 rated quarterbacks for this years draft were rocking Under Armour jackets in an interview snap shot we pulled below. But, this will be the last time that either wears anything but Nike. As long as they behave themselves. And that's always been an issue for NKE, exhibit A… Johnny Manziel who just checked out of rehab. Mariota was a NKE lock given his Alma Mater (Oregon Ducks a.k.a the Nike Ducks), but we have to assume that Winston came at a little higher price tag. Jameis even wore Adidas footwear during the combine.
FL - Foot Locker finds digital fit with new shoe app
Takeaway: No surprise that FL incorporated a lot of the same features that NKE introduced 2+ months ago with its SNKRS app into the company's first mobile app. We're referring primarily to the release calendar and store locator features. Foot Locker paired that with limited shopping functionality and sneaker emojis. The direct business totaled 12% of sales at FL last year -- the lion's share of which was Eastbay, with the other store banners within the portfolio under developed relative to other players in this space. Over the past 5 years FL was able to take productivity and returns up as the company rationalized its store base and took capital out of the model. This release is just another example of how the company needs to reinvest in order to drive future growth -- while at best maintaining Nike at 73% of purchases and 80%+ of sales. FL remains one of our top shorts.
TGT - Target Website, Apps Overwhelmed by Demand for Lilly Pulitzer
Takeaway: These limited release collections are just that - limited. No doubt that Lilly Pulitzer was a big coup for TGT on day one exhibited by the internet outages, but TGT has had some big wins in the past with Missoni and Phillip Lim which sold out almost instantly. Missoni in fact caused the same type of outages back in 2011. It's a good way for the brand to make media waves, but doesn't mean much from a comp perspective unless TGT can some how get Lilly to leave a line in TGT year around. We doubt that happens.
KSS - Retirement of Senior Executive Vice President Ken Bonning
WMT - Wal-Mart to Cut Management Role to Simplify Store Operations
ICON - Seth Horowitz, Iconix Chief Operating Officer Resigns
KSS- Kohl’s Taps Thakoon for DesigNation Collection
Abercrombie & Fitch to Open 1st Vancouver Location
AAPL - Apple in talks to launch Apple Pay in Canada: WSJ
Rakuten Buys Stake in China’s Fanli
TGT - Target does creative fitness deal with Lifetime
Former Ralph Lauren Exec Launches Lingerie Collection
Chris Evert Launches Tennis Line With Tail
Mall Developer Alfred Taubman Dies
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