Mid Day Outlook: December 6, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, December 6, 17
  
U.S. equities are down slightly, struggling for direction as major averages are coming off 3-day losing streaks for the S&P 500 and Nasdaq Composite. Twice this week U.S. stocks have opened stronger and twice they’ve ended up falling in a pattern unseen in eight months and one that signaled more pain when last it happened, according to Bloomberg. Major averages are coming off record highs late last week as the reality of new tax-reform inches closer, with bills passing in both the House and Senate, but markets still awaiting a compromise between the two chambers (few details of each bill differ such as AMT, tax rate, state/local tax provisions, etc.) before presenting the bill to President Trump. Technology shares led gains, with large FANG companies all advancing after a few days of weakness, though several sectors “softer.” Economic data was mostly in-line today with private payroll and productivity data offering no major surprises. The Bank of Canada keeps its key interest rate target on hold at 1% (as expected), but sends fresh signals that hikes are on the horizon. The dollar extending gains, while oil prices slide on bearish inventory data. Bitcoin in headlines again, up another 9% to above $12,900. Note if the S&P closes down for a fourth straight day, which will represent its longest streak of daily declines since March. A fourth straight daily drop for the NASDAQ would be its longest since November 2016.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar extends gains for a third session, rising broadly against rivals on tax reform bill hopes and rising interest rate expectations at next week’s FOMC meeting; euro near lows vs. dollar at 1.1794, down about -0.25%, though the dollar falls vs. the yen; the pound is down 0.4% on the US dollar amid consistent worries over Brexit talks. Can’t hold down Bitcoin, rising another 9% today, trading to new record highs of $12,905 (up 95% since its drop below $6,000 on 11/13). Canadian dollar drops as Bank of Canada leaves rates unchanged (as expected)
·      Precious metals little changed, holding onto slightly higher gains after a few days of selling pressure on a rising dollar and rising rate expectations
·      Energy futures lower, impacted by weekly inventory data: the API reported that U.S. crude supplies dropped by -5.5M barrels for the week ended Dec. 1, but on the bearish side, posted a jump of 9.2M barrels in gasoline stockpiles, and 4.3M barrel build for distillates. This morning, the DoE reported a larger draw in crude stockpiles of -5.6M barrels vs. est. -2.5M, but like the API report, bigger builds for gasoline (+6.78M vs. est. 2.55M) and distillates (+1.66M vs. 1.1M)
·      Treasury markets rallying, sending yields markedly lower, as the 10-yr trades down to 2.31%, while the shorter-term 2-yr falls over 5 bps back below 1.80%; the 30-yr down below 2.7%
 
Economic Data
·      Private sector employment as reported by ADP increased by 190,000 jobs last month, in-line with estimates and compared with October estimate of a gain of 235,000. Small private-sector businesses added 50,000 jobs in November, medium businesses added 99,000 and large businesses added 41,000, while most of those gains were in the service sector
·      Increase in productivity of American firms and workers was unchanged at 3% in the third quarter, slightly below the 3.3% estimate by economists, while unit labor costs fell (-0.2%) in 3Q, compared to a 0.2% expected rise and below the 0.5% preliminary reading; output rose 4.1% in 3Q vs. up 3.8% preliminary while employee hours rose 1.1% in 3Q
   
Sector Movers Today
·      Healthcare services and suppliers; HSIC/PDCO were both downgraded to Underweight (and cut targets) at Morgan Stanley on evidence of AMZN disruption/says drivers of price discovery and customer/supplier consolidation challenge the economics of Dental distribution; WBA said it would buy 40% stake  in Chinese pharmacy chain Sinopharm Holding GuoDa Drugstores Co Ltd, for $416M; TRHC 3M share Secondary priced at $27.50; ESRX was upgraded to Market Perform at Bernstein with $65 target based on improved upside risks from potential policy; HQY Q3 EPS and revenue tops consensus while lowers top end of year EPS view
·      Steel sector active after the DoC found in favor of US steel mills who claimed that certain imports of flat steel from Vietnam were circumventing existing AD/CVD duties on Chinese steel (Citigroup said this ruling will not directly reduce near-term imports, but it sets an important precedent in terms of what is define to be “significant transformation” and also applying duties retroactively – said expect a small positive reaction for X, AKS, STLD and NUE in that order).
·      Housing & Building Products; HD announced a $15B stock buyback plan and reaffirmed its view but set new long-term financial targets for total sales $114.7B-$119.8B and targets operating margin 14.4%-15.0% at its investor day today; RH reported 3Q results in line with its pre-announcement on 11/15 (note shares were up 238% YTD coming into the day)
·      Casino, Lodging & Leisure; WWE initiated overweight and Street high $37 tgt saying the company is well positioned to monetize its video content; in cruise lines, Morgan Stanley upgraded CCL to equal-weight citing a survey of travel agents which suggested strong cruise demand in November (says top pick in industry remains NCLH)
 
Stock GAINERS
·      AVAV +32%; reported impressive FQ2 results with revenues and EPS both well above Street views with strength in sales was primarily due to strength in unmanned aircraft
·      BF/B +5%; boosted its earnings outlook after beating Q2 views handily
·      DVA +11%; to sell its DaVita Medical Group to UNH’s Optum in a $4.9B deal, bolstering its primary and urgent care services https://goo.gl/jvVZLS
·      HRB +7% as Q2 revs top consensus and sees modest 2018 revenue growth
·      MDGL +83%; reported that MGL-3196 hits its primary endpoint, statistical significant reduction in fat (-36.3% vs. -9.6% placebo, P<0.0001) in its Phase 2b trial in 125 NASH patients
·      VKTX +14%; rising on MDGL trial success as company is developing VK2809, which has the same mechanism as MGL-3196, for treatment of fatty liver disease
·      X +7%; steel stocks rise after the DoC found in favor of US steel mills who claimed that certain imports of flat steel from Vietnam were circumventing existing AD/CVD duties on Chinese steel
 
Stock LAGGARDS
·      AVGO -1%; ahead of earnings tonight and general weakness in semiconductors
·      EIX -1%; extending losses after falling -12.78% yes on wildfires in Ventura, CA
·      FAST -1%; November sales growth rate disappointed investors, as daily sales rose 15.4%
·      FRED -22%; reported wider than expected Q3 loss of (42c) and a revenue miss/pulls dividend
·      HQY -4%; Q3 EPS and revenue tops consensus while lowers top end of year EPS view
·      HSIC -3%; downgraded along with PDCO at Morgan Stanley on evidence of AMZN disruption
·      OSIS -9%; after short seller Muddy Waters negative on name citing bribery concerns
·      TROX -24%; shares plunge after the FTC challenge to Tronox’s $1.7B purchase of Cristal’s unit and Goldman’s downgrade of two companies (cut rating on CC andVNTR); JP Morgan called for a standalone value of $16 ex-Cristal Tronox
 
Syndicate
·      Attunity (ATTU) 2.963M share Spot Secondary priced at $6.75
·      Bill Barrett (BBG) 21M share Spot Secondary priced at $5.00
·      Editas Medicine (EDIT) 1.97M share Spot Secondary priced at $26.00
·      Integer (ITGR) 900K share Block Trade priced at $45.00
·      Tabula Rasa HealthCare (TRHC) 3M share Secondary priced at $27.50
 

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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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