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.
Equity resiliency continues to astound, as the Dow Industrials touch a fresh intraday high (traded above 21,300), led by a gain in financials (GS, V lead in the Dow) ahead of tomorrow’s FOMC rate decision, while the technology based Nasdaq Comp rebounds following back to back declines (heavy drop on Friday). All eyes on the Fed, which kicked off its two-day meeting today and is expected to result in a 25 bps hike tomorrow (2nd hike of year), though markets will look for clues to further pace of rates, which are currently primed for only one more hike in 2017 according to recent Fed members. Oil prices reverse earlier gains ahead of inventory data tonight, while gold prices slide for a 5th straight session. . Outside of the start of the 2-day FOMC meeting tomorrow, Attorney General Jeff Sessions will testify before the Senate Intelligence Committee later this afternoon in an open session. More waiting for markets, though stocks are pushing higher in the early going.
Treasuries, Currencies and Commodities
· In currency markets, the dollar is down slightly, falling vs. the British pound after recent underperformance, but little changed vs. euro and yen ahead of FOMC decision tomorrow
· Precious metals sliding for a 5th straight day ahead of the FOMC decision tomorrow; gold had rallied in recent weeks to highs just under the $1,300 an ounce level…but have slipped since on expectations of a more “hawkish” Fed tomorrow with rising rate expectations
· Energy futures reverse earlier gains, as WTI crude drops to $45.70 (off earlier highs of $46.41); weekly API inventory data tonight and EIA tomorrow morning
· Treasury markets barely budging as day one of the FOMC meeting kicks off today; 10-yr yield 2.214%, 2-yr up above 1.36% and 30-yr little changed at 2.88%
· The producer price index (PPI) was flat in May (in-line with forecasts) following a sharp 0.5% increase in April. Core prices (ex food and energy) rose 0.3% MoM in May, above views for a smaller 0.1% increase. The 12-month rate of wholesale inflation stood at a 2.4% in May, up from zero a year earlier and just a notch below a five-year high.
· The National Federation of Independent Business (NFIB) said its small-business optimism index held steady at a seasonally adjusted 104.5 in May from the prior month. This is slightly above the consensus forecast of 104
Sector Movers Today
· Transports; after underperforming yesterday, airlines mixed on day; JBLU prelim May traffic rose 3.8% from May 2016, on a capacity increase of 3.7%; load factor for May 2017 was 84.7%, an increase of 0.1%; another record high for FDX today; car rental stocks (CAR/HTZ) got a lift after reports some revised used car pricing data; Transport index trades to best levels since March
· REITs; Morgan Stanley downgraded shares of office REITs PGRE to underweight and SLG to equal-weight saying office REITs exposed to NYC are pricing in rent growth that is too optimistic/said new work on 1) tenant relocations and 2) the pace of sales/incentives in the $100+ per square foot market raises red flags and see rent growth turning negative; ADC 2.1M share Spot Secondary priced at $46.65. BTIG said mall REIT rally during the past week suggests that the group is in the early innings of a significant rebound versus the rest of the REIT sector
· Asset managers; some out with monthly assets under management (AUM) data; IVZ reported preliminary month-end AUM of $859.0B, an increase of 2.1% month over month; AB monthly AUM increased to $512B during May 2017 from $504B MoM; MN preliminary AUM $28.7B as of May 31 with $29.2B at April 30 and $31.6B at March 31
· MLP Sector; Morgan Stanley downgraded the three stocks that make up the Cheniere complex to equal-weight saying the current expansion is “fully priced in” after the recent rally. Cheniere has outperformed on “exceptional” project execution, though additional project sanctions appear unlikely over the next 12-18 months given low energy prices; downgraded LNG, CQP andCQH to EW from OW; separately upgrades GLOG to overweight with PT $17 on favorable risk-reward, and GLOP to overweight with PT $25.50 on faster distribution growth. Barclays upgradedSEMG to overweight in light of the stock’s selloff following the proposed HFOTCO acquisition as we believe valuation has become more attractive
· CMC +5%; upgraded to buy at Citigroup as sees the greatest upside from potential Section 232 trade action in long steel products and long steel mills
· DATA +3%; upgraded to buy at Goldman Sachs citing considerable upside from transition to predominantly recurring revenue model by early 2020/raise tgt to $78 from $59
· IMAX +6%; after announcing $200M stock buyback/to cut 14% of workforce
· MNK +3%; after Wells Fargo said the company is exploring all strategic options, including going private after meeting with the company last week.
· SMG +3%; despite company lowering its year EPS and sales forecasts
· TSLA +3%; upgraded to buy at Berenberg and raised price target for the shares to $464
· WDC +2%; rebounds with broader tech/Aegis initiates buy and $130 tgt
· CAKE -9%; cuts its Q2 comp sales view to down 1% from prior view of up 1%-2%
· FMSA -2%; as SLCA building frac sand mine and plant in Permian
· MELI %; downgraded to neutral at Goldman Sachs following sharp rise in the stock price
· MRK -1%; pausing enrollment in two Keytruda multiple myeloma studies due to imbalance in patient deaths
· SAIC -8%; after Q1 EPS missed by 2c while revenues also fell short of consensus for Q1
· SYNA -4%; to acquire Conexant for $343M and narrows its Q4 revenue forecast
· VSAT -1%; mentioned as new short call by Kerrisdale Research
· Agree Realty (ADC) 2.1M share Spot Secondary priced at $46.65
· Banco Macro (BMA) 74M share Secondary priced at $90.00
· First Industrial Realty (FR) 2.56M share Spot Secondary priced at $29.50
· Nomad Foods (NOMD) 3.8M share Block Trade priced at $14.15