Mid-Day Outlook: May 1st, 2017

eOptionDaily Market Report

Equities quietly trading higher after a deal among Congressional leaders to fund the government through Sept. 30 was reached over the weekend, while stocks continue upward momentum on better earnings this quarter (and another buys week of results coming up). Stocks trimming gains after weaker-than-expected readings on consumer spending, personal income and inflation data (ahead of the FOMC this Wednesday). The Federal Reserve’s preferred measure of inflation, personal consumption expenditures index, retreated from a five-month peak in March. Commodity prices are lower, as energy remains a laggard over the last few weeks despite soaring broader market stock prices.

Government reaches deal to fund government: The package, which would fund the government through the end of the current fiscal year, includes a $12.5 billion increase in defense spending, a priority for Trump and his fellow Republicans, but also a $2 billion increase in funding for the National Institutes of Health, despite Trump’s request to cut funding for the institute, according to a senior congressional aide. The deal also includes $1.5 billion for border security, with the money to be spent on technology and on repairing existing infrastructure, the aide said

Treasuries, Currencies and Commodities

  • In currency markets, the dollar is down slightly, with the dollar index (DXY) below the 99 level after mixed to weaker economic data; the dollar flat vs. yen, while the euro climbs; all eyes on FOMC meeting this Wednesday
  • Commodity prices lower; Precious metals slip as gold trades lower, set to snap 2-session advance (gold only down slightly), while oil prices resume weakness, as WTI crude drops back under $49 per barrel (4-weeks til OPEC meeting – May 25th)
  • Treasury markets were little changed, as the latest attempt for the yield on the 10-year to get back above (and hold) 2.30% failed following mixed economic data reports today (weaker ISM and personal income/spending data) ahead of the FOMC meeting this week – remains around 2.28% for the 10-year, 1.26% for the 2-year

Economic Data

  • Construction Spending for March fell (-0.2%) vs. est up 0.4% as February was revised up to 1.8% (from 0.8%) up to $1.22 trillion annual pace, highest on record; Private residential construction rose 1.2% to highest level since June 2007, while private nonresidential construction fell 1.3% and  Public construction fell 0.9% in March
  • ISM Manufacturing for April falls to 54.8 from 57.2 last month and below est. at 56.5; component breakdown shows: new orders fell to 57.5 from 64.5, while employment fell to 52 vs 58.9; inventories rose to 51.0 vs 49.0 though customer inventories fell to 45.5 vs 47.0; prices paid fell to 68.5 vs 70.5 and backlog of orders fell to 57.0 vs 57.5
  • Personal Income for March rose 0.2%, below est. for up 0.3%, while personal consumption was unchanged vs. est. up 0.2%; real personal spending rose 0.3% (est. up 0.4%); core inflation fell (-0.1%), in-line with forecasts and rose 1.6% YoY; PCE prices fell (-0.2%), the first decline in 14-months but was also in-line with views and rose 1.8% YoY; the savings rate at 5.9% in March vs 5.7% the prior month
  • April Markit Manufacturing PMI 52.8, in-line with prior Flash Reading, but the index falls to 52.8 from 53.3 in March (but up from 50.8 a year-ago); still the lowest reading since Sept. 2016 as output falls to 53.5 from 54.3 in March; new orders fall vs prior month
Sector Movers Today
  • Lending & Finance; OCN shares jumped after NRZ said it would pay OCN $425M to purchase MSRs (on which NRZ currently owns excess servicing), which would strengthen OCN and give NRZ more control of MSRs in case of a problem at OCN, according to KBW; ASPS up in sympathy with OCN news; credit card names slammed last week after COF, DFS and SYF NCO’s weak/earnings miss last week (COF was upgraded to buy at Deutsche bank while they downgraded DFS); LC was upgraded to positive at Susquehanna and raised tgt to $9 from $6 saying analysis suggests sufficient Q1 momentum to create an upward bias in ’17 and ’18
  • Industrial & Machinery; JP Morgan upgraded machinery stocks CNHI and AGCO to neutral after both companies exceeded expectations for the quarter last week but maintained conservative guidance for 2017 – they remain Underweight DE as it is more highly leveraged to US ag
  • Aerospace & Defense; Barclay’s with sector call today, downgrading sector to neutral from positive saying while defense stocks have been strong post-election absolute performers, they note the investor debate around the relative attractiveness of the group is more two-sided – the firm reduces rating on LLL, HRS and BAH (maintain OW rating on GD, NOC, and OA); WAIR shares fall after announced 2Q miss & abrupt CEO change
  • Medical equipment and devices; life science tool names (TMO, ILMN, A, NSTG) active after Congress reached an agreement on a new spending bill that includes a $2B increase to funding for the National Institutes of Health’s budget; WAT upgraded to buy at Janney and raise tgt to $200 as see the Life Science Industry transitioning to faster growth in 2017 and we believe that Waters will be a key beneficiary
  • Oil drillers; DO Q1 results topped views, but said sees Q2 sales unchanged to slightly up vs. Q1, which weighed on shares; SDRL to sell three jackups for $225M; Barclay’s cut targets for all 8 offshore drillers 31% on average saying based off model, the DCF of every rig in each company’s fleet, calculating cash flow for each year of its estimated useful life, with most 4th generation and even 5th generation rigs facing an early demise (says RIG and ESV with material downside risk)

 

Stock GAINERS

  • ARLP +7%; after boosted its 2017 revenue forecast and Ebitda outlook
  • ASPS +11%; up in sympathy with OCN news (see above)
  • JIVE +5%; to be acquired by ESW Capital Affiliate for $462M, with holders getting $5.25 per share https://goo.gl/Wy21ja
  • OCN +22%; after NRZ said it would pay OCN $425M to purchase MSRs according to KBW
  • RCL +2%; as cruise lines in general (CCL/NCLH) rise on report after trade paper speculation https://goo.gl/PQmqJ7
  • TRCO +6%; on reports FOXA/BX teaming up to make competing bid https://goo.gl/OIvTxh
  • TWTR +5%; CEO Jack Dorsey buys 574K shares/WSJ says co. in news partnership w/Bloomberg

Stock LAGGARDS

  • AEZS -60%; Phase 3 trial of cancer treatment Zoptrex did not meet primary endpoint
  • DISH %; after losing -143K TV customers in Q1 (vs. -23K a year ago) as revenue/earnings drop
  • DO -5%; Q1 results topped views, but said sees Q2 sales unchanged to slightly up vs. Q1
  • FNBC -94%; was closed by Louisiana Office of Financial Institutions and FDIC on Friday
  • ITCI -35%; after FDA info request/seeks more toxicity information on schizo drug Lumateperone
  • NTRP -55%; after misses primary endpoint in Alzheimer’s trial/fails to impress investors
  • STS -4%; reported lower 1Q EPS and sales, due to delays
  • WAIR -17%; announced 2Q miss & abrupt CEO change
  • WDC -2%; after Jefferies downgraded to hold following strength in shares/valuation

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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