Mid-Day Outlook: May 24th, 2017

eOptionDaily Market Report

U.S. stocks holding steady, rising for a 5th day after last Wednesday market plunge on Washington concerns (President Trump/Russia connection newspaper articles) created market uncertainty regarding the push forward for his pro-business policies. Volatility has since dried up as well, as the CBOE Volatility Index (VIX) is now heading for its longest losing streak of the year, with a 33% five-day drop that’s the biggest since the aftermath of Donald Trump’s election in November. Moody’s Investors Service cut China’s rating overnight to A1 from Aa3, the first downgrade of the country since 1989. The Shanghai Composite initially fell more than 1% after the downgrade, but bounced to close up 0.1%. Stocks are mixed today with retail lagging markets once again, following weakness in AAP, TIF, LOW, CHS after earnings and/or guidance disappoint. Energy markets waiting patiently for confirmation of extending oil production cuts out of OPEC (tomorrow official meeting), while housing data in the U.S. disappoints for a second consecutive session. Overall, markets remain just off all-time highs after erasing last week’s drop.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar highs vs. yen – jumps to 112.06 up 0.25%, while the euro is little changed; FOMC Minutes from prior meeting out later today which could impact currencies; Canadian loonie gains 0.5% to C$1.3450 per U.S. dollar, strongest since April 24. After Bank of Canada kept interest rates unchanged
·      Commodity prices; precious metals slip early, adding to yesterday’s declines and falling from recent 3-week highs as the dollar hold steady; rotation back into riskier assets (oil and stocks) has weighed on defensive gold prices the last few days
·      Energy futures bounce after EIA report shows U.S. crude stockpiles dropped for 7 straight weeks, with crude inventories falling -4.4M barrels vs. est. -2M draw (then prices right back in to flat); markets focus remains on the upcoming OPEC and non-OPEC joint committee currently meeting to study merits of extending existing production cuts by 6, 9 or 12 months. Final decision by wider group of participating nations will come Thursday in Vienna
·      Treasury markets are little changed after yields climbed the most in two weeks on Tuesday after President Donald Trump’s new budget raised prospects of higher growth and inflation; the 10-yr yield is around 2.28%, down small on day (rose over 3 bps yesterday to 2.285%)
 
Economic Data
·      Existing-home sales for April fell (-2.3%) to 5.57M, below est. of 5.65M, after rising 4.2% prior month; there was 4.2 month’s supply in April vs. 3.8 in March; said inventory rose 7.2% to 1.93M homes; said 1st-time buyers 34% of total sales; all cash 21%; investors 15%; median home price rose 6% from last year to $244,800
   
Sector Movers Today
·      Auto movers; another bad news day for auto retailers after AAP Q1 EPS misses along with revs, while comp sales fall (-2.7%) more than the est. (-0.7%) – note the group fell sharply yesterday after AZO quarterly miss; ALV was upgraded to overweight at Morgan Stanley saying mid-teens EPS growth from FY18e looks strongly underpinned as 2015-16 order wins come into production
·      Aerospace & Defense; French aerospace supplier Safran SA said it cut its bid price for Zodiac Aerospace SA about 15% to EUR7.3 billion ($8.2B) after renewed profit headwinds came to lighthttps://goo.gl/Sf3HnV; TGI jumps on EPS beat, though sales and sales guidance misses views, but settles with Bombardier; HEI Q2 EPS topped highest estimates but revs missed views/raised year sales and net income outlook
·      Asset managers/advisors; EV Q2 EPS/revs/AUM top consensus; TROW was downgraded to sell from buy at UBS as they see higher distribution costs and sustained pressure on organic growth weighing on EPS forecasts and the multiple. Note uncertainty around fiduciary rule heightened as the DOL did not delay the fiduciary rule further, which should keep uncertainty high and sustain an overhang around asset manager stocks (Nomura cut tgt and estimates on RJF, SF, LPLA)
·      Utilities active; PJM capacity auction results for 2020/2021 fell to $76.53MW/day from $100MW/day year over year. EMAAC (Eastern Mid-Atlantic Area Council) zone pricing cleared at $188MW/day, up from $120MW/day, which should benefit PEG, CPN and EXC according to Goldman Sachs and said DYN faces the strongest headwinds as it’s highly exposed to regional transmission organization (RTO) zone. Credit Suisse said PEG and CPN “net beneficiaries,” while DYN, NRG and FE will “bear the brunt of a poor RTO showing”
·      Metals & Mining; the U.S. Steel sector was upgraded to overweight at Credit Suisse and upgraded NUE, STLD and X to outperform saying prior cautious investment thesis on the sector has played out, prices to recover by late 3Q this year; said HRC prices to bottom near $580/ton this summer, recover by late 3Q as demand trends remain strong, inventories are low
·      Shipping and tankers; ANW plunges as Q1 results missed estimates by wide margin/downgraded at Stifel as increasing competition appears occurring in several of ANW’s markets, impacting margins and profitability; DRYS took delivery of previously announced 159,855 deadweight tons newbuilding Suezmax tanker May 19; the Baltic Dry index falls 1.6% to 934 Points in London;STNG 50M share Spot Secondary priced at $4.00 after announces merger with Navig8
 
Stock GAINERS
·      FGL +6%; to be acquired by CFCO for $31.10/$1.84B deal https://goo.gl/2vxVmd
·      INO +25%; said Pennvax-GP elicited immune response rates among the highest ever seen in human study of an HIV vaccine (71 of 76 people using had response)
·      INTU +7%; after quarterly results top views and raises outlook on strong sales of software
·      NVDA +1%; as Japan’s SoftBank has built a $4 billion stake in chip-maker https://goo.gl/TpjYxy
·      SBPH +25%; after the company’s phase IIa study on chronic Hep B drug met endpoints
·      TCS +36%; after quarterly results beat and announces initiatives for 2017, including plans for continued cost reductions across TCS and Elfa
·      TGI +34%; after Q4 results/reach settlement agreement with Bombardier
·      TLYS +17%; as Q2 EPS results topped consensus
 
Stock LAGGARDS
·      ANW -32%; as Q1 results missed estimates by wide margin/downgraded at Stifel
·      CHS -12%; misses profit and sales expectations, provides downbeat outlook
·      DY -16%; as sales, profit outlook misses views (guides Q4 $1.35-$1.50 vs. $1.79 estimate)
·      NBIX -8%; said Ingrezza did not meet its primary endpoint of change-from baseline in YGTSS score at week 6 vs. placebo in its phase 2 T-Force GREEN study in pediatric patients with Tourette’s
·      OOMA -28%; reported better-than-expected Q1 EPS, but revs miss and guided revenue down for F2Q18 and FY18 (downgraded by a few analysts)
·      SIG -7%; on TIF results and after downgraded at Buckingham
·      TIF -7%; after reporting an unexpected decline in 1Q comp sales (-2% vs. est. up 1.7%)
·      UHS -2%; after report of FBI, Defense Department expanding investigation
 
Syndicate
·      Albireo Pharma (ALBO) 2.2M share Spot Secondary priced at $20.50
·      Alnylam (ALNY) 5M share Spot Secondary priced at $71.87
·      First Bank (FRBA) 3.29M share Secondary priced at $11.40
·      GlycoMimetics (GLYC) 7M share Secondary priced at $11.50
·      Quantenna Communications (QTNA) 1.98M share Block Trade priced at $20.25
·      Scorpio Tankers (STNG) 50M share Spot Secondary priced at $4.00
·      SMART Global (SGH) 5.3M share IPO priced at $11.00
·      Trade Desk (TTD) 4.32M share Secondary priced at $52.00

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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