MACRO – TELECOMS SHINE IN MIDST OF GLOBAL
RECESSION
Deutsche Telekom (Europe’s largest telecommunications company) and
Telefonica SA of Spain (Europe’s second largest telecommunications company)
both reported Q4 results and forward guidance that exceeded analyst
expectations. In our opinion, the results coupled with the better-than-expected
guidance, demonstrate the resilience of mobile services in spite of a consumer
depression. In particular, Deutsche Telekom showed strong growth trends for
mobile data in users, revenue and ARPU (see Figures 1 and 2).
In other news, the United States government announced plans to increase its
stake in Citigroup to 36% following the stock swap arrangement announced
today. This week, the majority of economic reports issued were very weak. The
Q4 seasonally-adjusted S&P/Case-Shiller Housing Price Index came in worse
than expected at -18.23% Y/Y growth versus the surveyed -17.2% and revised
-16.55%. Also this week, Initial Jobless Claims for the week-ended February 21,
2009 came in higher than expected at 667K versus the surveyed 625K and the
revised 631K (prior 627K). Q4 seasonally-adjusted annualized GDP growth was
worse than expected at -6.2% growth versus the surveyed -5.4% and prior
estimate of -3.8%, marking the worst annualized quarterly GDP decline since Q1
of 1982. The University of Michigan Conference Index forecast for the month of
February came in at 56.3 versus the surveyed 56.0 and prior 56.2.
The leading indicators we track were chiefly negative this week. CDS spreads
increased by 8 bps to 217 bps (see Figure 3). The 3-month LIBOR to US T-bill
spread increased slightly by 4 bps to 101 bps (see Figure 4). The Baltic Dry
(Freight) index decreased by 5% to the 1950 level and the US ECRI Weekly
Leading Index decreased by 1.5% to 105.6 (see Figures 5 and 6). North
American Rail unit volumes were down 24% last week versus -12% in the week
prior. The VIX decreased by 5% to 45 and the spread between 10-year inflation
protected T-bills and nominal T-bills has pulled back from its previous upward
climb (see Figures 7 and 8). This week the sovereign CDS spreads of many Eurozone
countries have decreased slightly despite ongoing concerns regarding the
economic health of many European countries. The spreads of Spain, Poland and
Germany all have pulled back slightly from their run up the last few weeks (see
Figure 9, 10, and 11). In addition, the CDS sovereign spreads of the UK, the US,
and Japan have also retracted; however, they remain at very elevated levels thus
indicating that the global macroeconomic situation still remains highly uncertain
(see Figures 12, 13, and 14).
Conclusion: We see further signs of global economic weakness; however, it is
still too early to tell the breadth and depth of this recession.