"Unlike many strategists (who missed calling the cycle top in US Consumption, Employment, and Profits last year), we have stayed with The Cycle call we’ve had all along here in Q2," Hedgeye CEO Keith McCullough wrote recently.
Takeaway: Domestic stock funds have shed -$36.3B so far in '16, far worse than the first 14 weeks in 2015 which was the worst year on record.
Investment Company Institute Mutual Fund Data and ETF Money Flow:
In the 5-day period ending April 6th, domestic equity funds lost another -$5.3 billion, bringing the first fourteen weeks of 2016 to a net redemption of -$36.3 billion. This current draw down pace is far worse than the first fourteen weeks of 2015 which had totaled just $-9.8 BB, but which ended the year as the biggest annual redemption for the category in history. Additionally, the 2016 YTD withdrawal is just shy of the Financial Crisis cadence in 2008, in which domestic equity funds had lost -$39.7 billion over the same period (but the '08 cycle finished the year strongly with domestic stock subscriptions). Investors also withdrew -$555 million from international equity funds last week, bringing total equity mutual funds lost to -$5.8 billion. Meanwhile, the migration into passive funds continued with investors contributing +$7.0 billion to equity ETFs. Below is Morningstar's current count to the biggest money management complexes with exposure to the domestic stock fund category.
On the fixed income side, investors made net contributions in all categories. Total bond mutual fund flows came to +$6.7 billion. Bond ETF flows were relatively weak last week, coming in at only +$240 million. Finally, money market funds lost -$27 billion to withdrawals, as the seasonality of income tax payments hit its final week.
In the most recent 5-day period ending April 6th, total equity mutual funds put up net outflows of -$5.8 billion, trailing the year-to-date weekly average outflow of -$1.2 billion and the 2015 average outflow of -$1.6 billion.
Fixed income mutual funds put up net inflows of +$6.7 billion, outpacing the year-to-date weekly average inflow of +$1.5 billion and the 2015 average outflow of -$475 million.
Equity ETFs had net subscriptions of +$7.0 billion, outpacing the year-to-date weekly average outflow of -$1.0 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$240 million, trailing the year-to-date weekly average inflow of +$2.0 billion and the 2015 average inflow of +$1.0 billion.
Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.
Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:
Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.
Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors made a +5% or +$631 million contribution to the technology XLK ETF.
Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$5.8 billion spread for the week (+$1.1 billion of total equity inflow net of the +$6.9 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$540 million (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)
Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
"I really don’t think that the introduction of the negative interest rate backfired or caused the yen to appreciate and stock markets to decline in Japan... If anything, I can say that if we didn’t introduce the QQE with the negative interest rate, financial markets in Japan would have been even worse.”
That's BOJ head Haruhiko Kuroda, during a speech at Columbia University yesterday. Kuroda continued reiterating that the BOJ "will not hesitate to take additional easing measures in terms of three dimensions — quantity, quality and the interest rate — if it is judged necessary."
Here's analysis from our Macro team in a note sent to subscribers this morning:
"The Japanese yen’s -1% decline to the mid-109’s on the USD cross in the WTD has been good for a major squeeze higher in the Nikkei this week. Today’s massive +3.2% rally puts the index up +6.9% WTD with one more day of trading to go.
In a speech at Colombia University yesterday, BoJ Governor Haruhiko Kuroda doubled down on NIRP by highlighting how it “boosts the effects of existing policy measures by directly pushing down the short-end of the yield curve”. Despite this week’s spectacular gains, the Nikkei more-or-less remains in crash mode down -19.3% from its peak last June and we think it’ll take more than jawboning to perpetuate a series of lower-highs in the yen and higher-lows in the Nikkei from here.
We expect the pressure of decelerating trends across headline, core and producer price inflation – as well as long-term breakeven rates – to cause the BoJ to add to its easing measures at its April 27-28 meeting. Will additional easing in Japan be met with additional repudiation of the central planning #BeliefSystem, or will Japan simply export this growing lack of faith to U.S. markets via a stronger dollar?"
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email email@example.com.
NY is Hillary Clinton's Northeastern firewall, but like many of her other firewalls, the Bern found a way to jump it - and enthusiasm for him was more than validated by last night's crowd of 27,000 in NYC. Sanders had started to gain momentum, and was trending up in the polls - but Clinton has pulled out all of the stops, and his momentum statewide stalled. The surest sign of a Sanders loss is that he is following through with his scheduled trip to the Vatican after participating in tonight's Brooklyn debate. If he thought he was anywhere close to pulling off an upset victory he would be spending those two days in Rome, NY instead.
Following a big win for the anti-Trump movement in WI, their efforts heading into NY have lost as much steam as Cruz's campaign. Perhaps knowing a defeat was inevitable, the anti-Trump aligned PACs haven't spent any money on ads in NY. Whether it's a calculated decision or not, it may be a mistake - even slight resistance and microtargeting (a Cruz mainstay) in select Congressional districts could substantially decrease how many delegates Trump wins in NY, and at this point a mere 20 extra delegates could be the make or break for a first ballot Trump victory.
With preparations and plotting for the Republican convention in full effect, prominent Republicans across the party are declaring they will not attend as a number of them are facing competitive races this fall. NH Senator Kelly Ayotte and NC Senator Richard Burr have suggested they will skip the event - keeping out of the unpredictable spotlight or being tied to Donald Trump or Ted Cruz - reaffirming what a number of our political sources having been telling us for weeks: Republican incumbents are running intensely localized campaigns that more resemble those vying to be sheriff than Washington power brokers.
Takeaway: What do declining corporate profits mean for U.S. equities?
In a note sent to subscribers earlier this morning, the Hedgeye Macro team provides some early insights on how earnings season is shaping up thus far:
"It’s early in earnings season, but we got an early look at tough comps in commodity land (Monsanto and Agrium have both comped down double digits on top and bottom line). Alcoa fired 1,000 people globally in the process.
One of the key call-outs in our macro deck was that S&P 500 companies face tough comps for Q1 and Q2 (8 of 10 sectors comped higher in Q1 2015), with the flow through sparking the big question: with forward-looking earnings being taken down, what multiple will the market slap on declining forward looking expectations?"
For more, in the video below, Hedgeye CEO Keith McCullough explains why "we are vigilantly bearish on corporate earnings and junk bonds" while tearing down the latest permabull narrative that a weaker U.S. dollar will lead to “widespread earnings beats.”
If the ugly earnings picture holds, Q1 will be the third consecutive quarter of negative corporate profits. Look out below equity investors! Here's the must-see chart:
WYNN - 72,851 shares were transferred at an average price of $98.78 btw WYNN's family trust through Form 4
RCL - For the first time ever, Royal Caribbean will position two ships in its Cape Liberty, Bayonne cruise port. Both Anthem of the Seas and Rhapsody of the Seas will sail Caribbean itineraries during the summer of 2017. Rhapsody of the Seas will sail seven-night Bahamas cruises and a five-night Canada and New England cruise in the summer. It also will sail a 12-night fall foliage cruise and 13-night Southern Caribbean cruise before repositioning to Tampa for the winter. Anthem of the Seas will continue to call at Bermuda, the Bahamas and Caribbean throughout the summer, in addition to sailing a offering of Canada and New England cruises.
Takeaway: Could see slightly higher exposure to the Caribbean in 2017.
RCL (TUI CRUISES) - Thomson Cruises has announced that its new addition will be named TUI Discovery as part of the re-brand which will see the whole of Thomson transition to TUI over the next eighteen months. The update on TUI Discovery comes as Thomson Cruises also announces its new program for summer 2017 which will see the fleet based in the western Mediterranean, eastern Mediterranean and the UK for the first time since 2014. TUI Discovery and Thomson Majesty will both be based in Palma, Majorca whilst Thomson Dream will sail from Corfu. Thomson Spirit will move to Dubrovnik, Croatia and offer adult-only cruising while the fifth ship in the fleet, Thomson Celebration, will split its summer between Malaga, Spain in May and October and ex UK sailings from Newcastle between June and September.
CCL - Announced that it has declared a dividend of $0.35 per share, an increase of 17%. "The increase in our quarterly dividend follows a 20% increase less than a year ago and reflects our sustained earnings improvement and growing net cash flow which is forecasted to reach $4.5 billion in 2016," said Arnold Donald, Carnival Corporation & plc President and Chief Executive Officer. "The increased dividend, in combination with our current share re-purchase program, underscores our commitment to return value to our shareholders." The company's board of directors approved a record date for the quarterly dividend of May 27, 2016, and a payment date of June 17, 2016.
Takeaway: CCL has enough cash for a div increase
NCLH - The luxury line Wednesday said it would become the first cruise operator to include business class flights to its ships in the fare for all customers. The offer applies to all European, Asian and South American voyages where a customer would need to travel on an intercontinental flight in order to reach the ship or to return home. Regent said the included business class flights would be available to and from 26 U.S. and Canadian gateway cities. Even passengers in the lowest categories of cabins will be eligible for the included flights. Regent bills itself as the most inclusive cruise line. It already includes shore excursions, fine wine and spirits, unlimited Internet access, prepaid gratuities, ground transfers and pre-cruise hotel stays in its fare.
Takeaway: One way Regent says competitive is to offer more freebies
MSC CRUISES - MSC Cruises, as reported previously, will implement several new sales policies that make its terms less generous and more closely aligned with those offered by its competitors in North America. Among the changes are its first policy restricting the practice of commission rebating, a rule in place for more than a decade at brands such as Royal Caribbean International and Carnival Cruise Line. “We want travel agents to advertise us at the going rate,” said Ken Muskat, the executive vice president of sales, public relations and guest services at MSC Cruises USA. “We want it to be fair across the board.” The other policy changes include raising deposit minimums, making it harder to cancel cruises without a penalty, and setting a two-month window for passengers to move a direct booking to their agent’s account.
MACAU | NEW JUNKET CAPITAL REQUIREMENTS - Macau’s government is working with gaming promoters on a proposal that would see capital requirements for new operators increasing 100-fold, according to people familiar with the matter. If passed, the move could further squeeze revenue for Wynn Macau Ltd. and other casino companies. One proposal under consideration includes raising capital requirements for new junket operators to 10 million patacas ($1.3 million) from 100,000 patacas, and the inclusion of at least one Macau resident as a shareholder, said one of the people, who asked not to be identified because the deliberations are private.
Takeaway: Given the tough environment, the question is who is interested today in becoming a new junket operator?
MACAU | TOURIST PRICE INDEX - DSEC indicated that the Tourist Price Index for the first quarter of 2016 decreased further by 6.67% YoY to 136.44, attributable to lower charges for hotel accommodation, and reduced prices of handbags and women’s clothing. Price index of Accommodation decreased most significantly by 23.80% YoY, followed by Entertainment & Cultural Activities (-2.35%) and Clothing & Footwear (-1.98%). On the contrary, price index of Food, Alcoholic Drinks & Tobacco increased by 3.77% and that of Transport & Communications rose by 2.31%.
MACAU | MASTER CARD ASIAPAC DESTINATION INDEX - The first MasterCard Asia Pacific Destinations Index tracking the growth of the region’s tourism doesn’t include Macau in its top 20 for overnight tourist arrivals and tourists’ expenditures. The study is the first MasterCard Asia Pacific Destinations Index - an offshoot of the annual Global Destination Cities Index - to take a more in-depth focused look at these tourism trends, taking data from the national tourism boards of 22 countries and ranking 167 destinations, including island resorts as well as towns and cities across the region, in terms of the total number of international overnight arrivals; cross-border spending; and the total number of nights spent in each destination. According to MasterCard Asia Pacific Destinations Index, Hong Kong ranked 7th with 8.3 million international overnight visitors, Shangai ranked 12th with 5.5 million overnight visitors, Beijing was 18th with 4 million, and Guangdong Province (excluding Guangzhou, Shenzhen & Zhuhai) ranked 19th with 3.9 million visitors. Macau's dependence on Chinese visitation is the main reason they didn't break the top 20 on the index.
SINGAPORE | INTEREST RATE CUT - Singapore's central bank unexpectedly eased policy on Thursday after growth stalled in the first quarter and as slackening global demand darkened the outlook for the trade-dependent economy, sending the local dollar tumbling to its worst loss in eight months. In its third policy easing in 15 months, the Monetary Authority of Singapore (MAS) said it will set the rate of appreciation of the Singapore dollar NEER policy band at zero percent - starting on Thursday - and shift to a neutral policy stance. It marked the first time the MAS has moved to 'neutral' since the global financial crisis, and compares with its previous policy stance of a "modest and gradual" appreciation of the Singapore dollar.
Takeaway: Despite the easing of policy, the USD/SGD has moved lower YTD by 4%.
GAMING | BATON ROUGE SMOKING BAN - The Baton Rouge Metro Council narrowly rejects smoking ban for bars, casinos; long debate touches on health, morality, business climate. Casino executives from L’Auberge Casino and Hotel, Hollywood Casino and the Belle of Baton Rouge showed up in full force and tried to quell concerns about their employees’ well-being. Mickey Parenton, the senior vice president of operations and general manager of L’Auberge, insisted his No. 1 priority is his employees. He said if an employee complains about smoke, he would move the employee to a smoke-free part of L’Auberge without a change in pay. Casino executives said they would expect about a 20% drop in revenue if the ordinance passed. New Orleans banned smoking in casinos and bars a year ago, and council members and people attending Wednesday’s meeting squabbled over how much that smoking ban is to blame for declining revenues at Harrah’s New Orleans Hotel and Casino.
NEVADA | UNEMPLOYMENT/EMPLOYMENT DATA - The state’s jobless rate came in at 5.8%, down from 5.9% in February and 6.9% in March 2015, the state Employment, Training and Rehabilitation Department reported Wednesday. Much of the improvement came from job growth. Employers expanded payrolls by 2.8% YoY, for the nation’s third-best job-formation rate. Nevada’s employers added 35,500 jobs year to year, for the 63rd straight month of gains. March was also the 44th consecutive month in which the state’s annual job growth outpaced the nation’s, said Bill Anderson, the employment department’s chief economist.
LODGING | AFRICAN HOTEL DEVELOPMENT - Despite slowed growth across the continent, Africa remains a major hospitality destination for tourists and business so investors are planning 30% more hotels this year than they did in 2015, says a new report. The spike in hotel development on the continent is mostly driven by sub-Saharan Africa where growth more than doubles the rate in North Africa, according to W Hospitality Group which tracks the growth rate of expansion for regional and international hotel chains in Africa. The slowing hotel development growth rates in Northern Africa, asides from the sociopolitical crises in Egypt and Libya, is due to the market being “more mature” says Trevor Ward, managing director of W Hospitality Group. In contrast, sub-Saharan Africa remains still holds gaps of opportunities which investors are clearly keen to explore. Nigeria tops the list of countries with the most planned hotels while Angola, buoyed by AccorHotels’ deal to build 50 hotels in the country, has risen to second place. While the report covers the hotel deals agreed for the year, the timeline for the construction and opening of these hotels is entirely different. Access to finance, among other reasons, have slowed down the execution of building plans. But the new deals signal long-term trust in the African hospitality industry despite the current economic outlook for leading economies on the continent.
REGIONAL REVENUES (MAR)
Iowa SS GGR: +1.0% YoY
Atlantic City SS GGR: -1.7% YoY