Mid-Day Outlook: September 29, 2017

Regal HelpdeskDaily Market Report

Mid-Morning Look
Friday, September 29, 17
U.S. equities are mixed early, with gains in financials offsetting early weakness in energy, but the benchmark indexes are poised for weekly, monthly and quarterly gains. The Nasdaq Comp about 1o away from record highs, as the S&P 500, Dow Transports and Russell 2000 index come into the day at all-time highs. Bonds initially inched higher after the August core PCE core price index came in a bit cooler than expected with a 0.1% monthly increase (vs. est. 0.2%), which has led to a slight downward adjustment of the market’s rate hike expectations. However, bonds slipped and yields jumped after the much stronger Chicago PMI data ramped up rate hike expectations again. The other factor moving bonds and financials, a WSJ report today that said President Trump met with ex-Fed governor Kevin Warsh yesterday to discuss potential nomination as next Federal Reserve chairman,  citing a White House official. Also in contention: Janet Yellen, Stanford economist John Taylor and ex-BB&T CEO John Allison according to the report. Warsh seen as positive for banks as has had hawkish view.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar bouncing from earlier losses, with the dollar index on track to post its best weekly performance all year and snap what had been a string of six weekly losses, helped by tax reform proposal plan and rising expectations of interest rate hikes by the FOMC
·      Precious metals slip modestly, on track for a weekly decline given the rebound in the dollar this week and as investors continue to pile into riskier assets (stocks) and out of defensive ones
·      Energy futures slip early after 1% drop yesterday, but WTI crude still poised for its biggest quarterly gain in more than a year on forecasts for rising demand and Turkey’s threat to halt Kurdish exports; inventory data mixed this week; WTI crude holds above $51 per barrel
·      Treasury markets slip, as yields tick slightly higher, holding above 2.30% after rising as high as 2.34% early yesterday (11-month highs); mixed economic data today (inline spending and consumption, but weak inflation data) moving markets; the 2-yr yield holding around 9-year highs reached this week (1.45%) on the Fed’s commitment to normalize monetary policy (comments last week at meeting/Yellen comments this week)
 
Economic Data
·      Personal Income for August rose 0.2% (in-line with estimates) while personal consumption rose 0.1% (also in-line); real personal spending fell (-0.1%), in-line with estimates. However, inflation data points come in weaker as PCE core inflation rose 0.1%, below the est. rise of 0.2%, while PCE YoY rose 1.3%, below the 1.4% estimate; compensation at 0.1% in Aug. vs 0.5% the prior month
·      Chicago PMI jumps to 65.2 in September from 58.9 in August and topping estimates for a 58.7 reading; prices paid, new orders and employment rose at a faster pace, signaling expansion
·      University of Michigan confidence sentiment index for September fell to 95.1 from 95.3 in the preliminary reading (and same as estimate), and down from 96.8 last month; the expectations index fell to 84.4 vs. 87.7 last month and the current economic conditions index rose to 111.7 vs. 110.9 last month
Sector Movers Today
·      Transports; the index posted all-time closing highs yesterday, as most segments performing very well (truckers, rails and freight); in rails TRN upgraded to buy at Citigroup as sees the potential for 2018 earnings to be up mid-teens YoY; in truckers, JBHT, HTLDand USAK upgraded to buy at Stifel as predicts TL contract rates can move up an expected 5%-10% over the next three quarters as the surface transport market heats up
·      Large Cap/Regional banks (RF, PNC, KEY) among gainers early, erasing initial losses after the WSJ reported President Trump, Treasury Sec. Mnuchin were said to have met with ex-Fed governor Kevin Warsh to discuss potential nomination as next Federal Reserve chairman (KBW said on 9.20 that nominating Kevin Warsh, who’s got both private sector and Fed experience, as Fed chairman might be “the best news of all possible candidates” for financial stocks, as his views on financial regulation are likely in line with the Trump administration’s agenda)
·      Wood & Paper sector; shares of OSB and LPX downgraded to underperform at BMO Capital, but raised targets on both, saying 2017 is proving a banner year for the companies as high operating rates (~91%) and two major hurricanes have driven OSB prices to peak level…but said 2.7Bsf of OSB supply additions over the next 6-9 months seem destined to pressure OSB prices
 
Stock GAINERS
·      AEHR +4%; after the company said 1Q sales rose 31% YoY
·      CONN +7%; upgraded to outperform at Oppenheimer citing an improved outlook for the company’s credit business and for earnings and has $40 tgt
·      FINL +6%; NY Post reported late yesterday that Sports Direct is said to be in talks to buy the company https://goo.gl/3PhraJ 
·      KBH +8%; upgraded at Mizuho after Q3 EPS topped consensus along with margins
·      PTCT +9%; despite FDA Panel voted that its experimental therapy (Translarna) is inconclusive
·      ROKU +20%; rises on second day since coming public; 15.6M share IPO pried $14 yesterday
·      TSN +7%; raised FY17 EPS to $5.20-$5.30 from $4.95-$5.05 on strong beef segment performance
·      VERI +17%; Roth Capital said a $1B valuation for the company is “not only reasonable but could be conservative” and raises PT to Street-high $62
·      WYNN +3%; tgt raised to $174 at Deutsche Bank citing stronger Macau market gross gaming revs
·      ZGNX +123%; said a late-stage trial of a treatment (ZX008) for a rare type of epilepsy called Dravet syndrome met its primary endpoint
 
Stock LAGGARDS
·      AMC -4%; After three up weekends in a row, the box office appears on track for a double digit decline for the upcoming weekend, according to MKM Partners
·      GILD -1%; extends yesterday 3% decline after executive departure
·      PE ; lowered its 3Q17 and 4Q17 production guidance
·      PRTA -6%; announced decision not to advance PRX003 into mid-stage clinical development, due to lack of meaningful clinical benefit in psoriatic patients treated in the Phase I MAD study
·      SCG -3%; downgraded to sell at William Capital a day after cutting tgt to $40
 
Syndicate
·      CoStar Group (CSGP) 2.885M share Secondary priced at $260.00
·      Hilton (HLT) 14.6M share Spot Secondary priced at $69.20
·      PQ Group (PQG) 29M share IPO priced at $17.50
·      Yuma Energy (YUMA) 9.6M share Secondary priced at $1.00
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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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