Mid-Day Outlook

eOptionDaily Market Report

Equities trading mostly higher ahead of the FOMC meeting at 2:00 PM EST today and press conference from Fed Chair Janet Yellen at 2:30 PM. Broad consensus is for a 25 bps hike by the Fed after stronger jobs data last week and rising inflation expectations. Airlines active early after DAL forecast a contraction in 2017 margins and SAVE cut its TRASM view, saying it previously underestimated the effect of Easter holiday shift; UAL was mixed as it cut its year CASM views but raised capacity forecast (group has been beaten up after two days of cancelled flights along the Northeast due to snowstorm) – bouncing off lows. Markets seem in “wait and see” mode ahead of the Fed, with bonds and the dollar little changed, oil on track to snap its 7-day losing streak on bullish inventory data and stocks holding. Markets also digesting a plethora of economic data that was mostly positive this morning (details below).

Treasuries, Currencies and Commodities

·      In currency markets, the dollar is off slightly early after rising recently vs. most counterparts; all eyes on FOMC later today where rates are expected to increase, while markets will also be watching for forecasts going forward; dollar little changed vs. euro/yen early

·      Precious metals down slightly, but holding above the $1,200 an ounce level, while oil futures bounce (looking to snap 7-day losing streak) after bullish inventory data for a change (EIA and API inventory report positive for oil)

·      Treasury markets in holding pattern ahead of FOMC later; the 10-yr recently touched 2-yr highs around 2.61%, down around 2.58% now, after rising 9 bps last week in anticipation of a rate hike

Economic Data

·      Empire state index slips to 16.4 in March from 18.7 in February (which was a 2-year high) but was above consensus reading of 15.0; prices paid fell to 31 from 37.8 the prior month, new orders rose to 21.3 (best level in several years) from 13.5 and the number of employees rose to 8.8 vs. 2.0 MoM; unfilled orders index rose to 14.2, its highest level in more than a decade

·      The Consumer price index (CPI) rose by a seasonally adjusted 0.1% last month, slightly above the estimate of unchanged, but was the smallest increase since last July. Excluding the volatile food and energy component, CPI rose an in-line 0.2%. The increase in inflation over the past 12 months advanced to 2.7% in February from 2.5% in January, putting it at the highest level since early 2012

·      Retail Sales for February rose a modest 0.1%, which was in-line with expectations, while retail sales ex: autos rose 0.2% in Feb, slightly above the 0.1% estimate. Still, sales were 3.7% higher in the first two months of 2017 vs. the same period a year ago.

·      Business Inventories rose 0.3% MoM, in-line with estimates while Business sales rose 0.2% in January after rising 2.1% the prior month; Dec business inventories rose 0.4% MoM

·      The U.S. Home Builders’ Confidence index (NAHB) in March rises to 71 vs 65 last month, its highest level since June 2005; the present single family sales rise to 78 vs 71 last month, future single family sales rise to 78 vs 73 last month and prospective buyers traffic rises to 54 vs 46

Sector Movers Today

·      Airlines; news plentiful with various updates: JBLU sees April RASM adjusted for Easter up vs March (sees 2Q RASM, adjusted for Easter, up more than 1Q); UAL boosts year capacity views to up 3.5%-4.5% vs prior view 1.5%-2.5%, sees year international capacity up 1%-2% vs prior 0.5%-1.5%, while cuts year total CASM to 5.6%-7.2%, from 6.6%-8.2%; SAVE cuts 1Q total revenue per available seat mile forecast in 8-k filing to down (-4%-5%) from down (-2.5%); DAL said in slides that sees greatest margin pressure in March quarter, but sees return to margin expansion in 2H and revenue improving, but not fast enough to offset costs

·      Monthly Master Trust credit card data: Capital One (COF) said February net-charge offs (NCOs) were 5.09% vs. 4.91% MoM and the delinquency rate was 4.04% vs. 4.13% MoM; Synchrony (SYF) Feb NCO’s 5.48% up from 4.59% MoM and credit card delinquencies rose to 3.14% from 3.09% last month; JPM Feb NCO’s 2.28% vs. 2.29% MoM and credit-card delinquencies 1.23% vs. 1.19% MoM; Alliance Data Systems (ADS) Feb NCO’s 6.5% vs. 6.1% MoM and delinquency rate unchanged at 5.1%; Discover Financial (DFS) Feb net-charge offs (NCOs) 3.1%, up from 2.6% MoM, while delinquencies unchanged at 2.1% MoM (total card loans $59.9B vs. $60.7B MoM)

·      Housing & Building Products; homebuilders jump early (LEN, PHM, DHI, TOL) after the NAHB housing market index rises to 71 vs 65 last month, its highest level since June 2005

·      Optical sector; group has been slammed over the last 2-weeks on weaker earnings and outlooks; last night, NPTN shares active after lower Q1 guidance of loss (20c-30c) on revs $67M-$73M, well below consensus 5c/$98.04M (follows recent softer updates from CIEN and FNSR); FNSR was upgraded to buy at Jefferies saying recent weakness in shares (stock fell 23% on Friday) provide an oppty/weakness is due to product issues expected to be resolved in 1-2 quarters

Stock GAINERS

·      A +4%; trades to highest levels since 2000 after Morgan Stanley upgrade

·      ARD ; opened at $21.95 after pricing 16.2M share IPO at $19

·      ARNA +11%; jumped as Q4 earnings and revenues surprise to the upside

·      CBF +9%; is working with advisers to explore a sale after receiving an unsolicited approach, Bloomberg reported https://goo.gl/fo678v

·      FOGO +6%; as Q4 results top consensus, though midpoint of year guidance falls short

·      GOGL +7%; upgraded at Pareto after raises about $60M in oversubscribed offering

·      KOOL +11%; reports positive data from small study of platelet rich plasma to treat chronic ulcers

·      MSCI +11%; jumped on reports it rejected a takeover bid from S&P Global https://goo.gl/6JGle2

·      SWN +4%; upgraded to buy at Citigroup noting shares have fallen by >50% since peak last year

Stock LAGGARDS

·      ESRX -2%; downgraded to underperform at Wells Fargo/tgt range cut to $52-$56 from $79-$85

·      FTD -20%; downgraded at Sidoti after quarterly results miss

·      MU -1%; after South Korea’s Financial News reported that Samsung Electronics plans to invest 10t won in a new DRAM production line

·      RUBI -25%; after issuing disappointing 1Q forecast

·      TWTR -2%; after hackers were able to hijack several high profile accounts on the social media

Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P.  Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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