Mid-Day Outlook: April 24th, 2017

eOptionDaily Market Report

Global markets surge in relief rally amid reaction to results from the first round of the French presidential election. New record highs for Nasdaq Composite, now coming within 17 points of the 6,000 level ahead of a busy week of corporate earnings (note 29 Nasdaq 100 stocks have hit 52-week highs today…most since November 2014). Nearly 190 S&P companies report earnings this week, one of the busiest weeks in years. European markets jumped (France up 2%) with U.S. markets following after news the second round of the French Presidential election on May 7th will be between the centrist, Independent Emmanuel Macron and the far-right, National Front leader Marine Le Pen, while defeated candidates Fillon and Hamon announced support for Macron making him the favorite to win the second round (which would be good for the EuroZone as Le Pen wanted France to leave the union). It has been a “risk-on” kind of morning, with defensive names falling. M&A activity also giving a lift to stocks (BSX/BCR deal and RLJ/FCH deal), while expected tax reform news from President Trump this week (he said details are coming), is a third shot in the arm for stocks which are mostly higher, outside of a few defensive sectors (gold, staples, REIT’s and utilities underperform). The Chicago Board Options Exchange Volatility Index (VIX) was down around 20% (low of 11.14 this morning), trading at its lowest level in more than two weeks after touching its highest level of the year early last week as jitters over the French election and other concerns (high 16.28 last Monday). Bonds fall, gold falls, stock JUMP!

Treasuries, Currencies and Commodities

  • In currency markets, it’s all about the euro today, surging vs. all counterpart currencies after the first round of the French election tossed out the “worst case” market scenario of Le Pen vs. Melenchon which both had urged France leaving the EuroZone. Macron and Le Pen both took around 23 percent of the vote and are now set to face each other in a May 7 runoff. The euro pared gains after jumping around 2% (highs of 1.0937 – 5-month highs) before paring gains. The dollar jumps back above 110 vs. the yen as safe haven trades decline
  • Precious metals plunge, as gold prices decline over 1.3% to around 1,270 an ounce after investors take profits on recent run; defensive sectors, such as gold (and bonds) falls as markets reward riskier assets given Trump tax reform, French election outcome
  • Energy futures reverse earlier gains, falling with the commodity sector in general (note China markets fell over 1% last night, hurting commodities). WTI crude remains under $50 per barrel
  • Treasury market’s decline, as yields fall broadly on stock surge; the yield on the benchmark 10-year traded around 2.3% this morning (now about 2.28%) after touching 5-month lows last week of 2.16%; the 2-yr yield rises to 1.24%

Economic Data

  • Dallas Fed April Business Activity Index, 16.8 vs. 17.5 expected
  • March Chicago Fed national index 0.08 vs est. 0.50 while February revised to 0.27 from 0.34; 48 of the 85 monthly individual indicators made positive contributions, while 37 indicators deteriorated.
Sector Movers Today
  • Financials/banking stocks among the top gainers today after a surge in U.S. equities, along with a pullback in bonds (lifting yields), propels group which tends to benefit from rising rate environment. Also buoying sector, comments from President Trump vowing to announce tax reforms this week which is helping shares of banks and insurance stocks
  • Metals & Mining; Steel sector upgraded at Macquarie as raised AKS and STLD to outperform and raise X and NUE to neutral saying earnings results from some steel stocks show evidence of improving demand in steel market, which is expected to result in better volumes and pricing; ATI upgraded at Berenberg citing the 21% stock pullback; gold miners AU and GFI downgraded at RBC Capital (gold prices fall as investors sell defensive names)
  • REITs; group among top decliner in S&P (O, KIM, VTR, REG, MAC) on rising rate environment, and rotation into risker asset classes; lodging REITs active after RLJ agreed to buy FCH, making it one of the top lodging REITs an enterprise value of $7 billion. https://goo.gl/95EGds ; Healthcare REITs HCN and HCP downgraded at Evercore/ISI on valuation; William Blair lowers 2017 and 2018 ests on JLL, HFF and MMI but not CBG or CIGI saying few if any catalysts on the horizon that will change multiples; DFT downgraded to hold at Stifel

Stock GAINERS

  • AKS +4%; upgraded to outperform at Macquarie as part of broader steel sector upgrade
  • AKZOY +5%; PPG boosts bid for company by 8% to EU96.75 per share https://goo.gl/C7QGPT
  • BCR +19%; to be acquired by BDX for $317 per share/$24B deal https://goo.gl/hzxizs
  • BMRN +5%; extends gains after winning EMA backing for Brineura on Friday
  • FCH +6%; to be bought by RLJ in deal valued at $7B https://goo.gl/95EGds
  • HAL +1%; after company beats earnings estimates on strength in North America
  • HAS +5%; top/bottom line results top consensus helped by digital gaming business
  • ITW +5%; Q1 top/bottom line results topped consensus and guided year above views
  • SCYX +7%; ahead of anti-infective drug data to be presented tomorrow
  • SNY +4%; and REGN received positive European opinion for Kevzara
  • SRPT +1%; shares could double or more according to Barron’s
  • XLNX +4%; upgraded to outperform at Credit Suisse and added to best ideas list at Evercore/ISI

Stock LAGGARDS

  • BDX -3%; after agrees to acquire BCR for $317 per share
  • IMNP -5%; unveiling a restructuring and delayed 10-K filing
  • KMB -1%; cuts lower end of sales guidance on stiff competition after Q1 sales missed
  • LII -4%; as quarterly residential segment margins missed estimates
  • SOHU -3%; as Q1 EPS wider than expected and Q2 revs $390M-$420M misses est. $425.7M

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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