Mid Day Outlook: December 8, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Friday, December 8, 17
U.S. equity markets looking to end the week on a positive note, getting a lift on better jobs data and as the U.S. House passed a bill overnight to fund the government through December 22nd, as current funding measure expires at the end of the day. The U.S. added more jobs than forecast in November, rising 228K vs. the 195K estimate while the unemployment rate held at an almost 17-year low of 4.1%. Wages did disappoint slightly, rising 0.2% vs. an expected 0.3%. There were also positive developments in Europe and Asia as well that helped lift those markets: 1) The U.K. and the European Union struck a deal to unlock divorce negotiations, clearing the path to the start of trade talks between the U.K. and its biggest commercial partner; 2) China’s exports grew 10.3% in November from a year earlier in yuan terms, following a 6.1% gain in October. Imports for November expanded 15.6% in yuan terms from a year ago. Markets still hopeful a deal between the House and Senate will come to fruition on the tax legislation as the two chambers remain apart on several points. Tech outperforms early after starting the week with profit taking in Internet and semiconductors.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar index (DXY) is trading higher, looking to make it a 5th straight day of gains following the strong jobs report; the dollar remains higher but has pared gains; the Canadian dollar hits a 1-week low at C$1.2871 vs. the dollar; the dollar holding gains against the yen and euro, while Bitcoin fell as much as 10% after topping $17,000 earlier, but has since pared losses; the British Pound has reversed earlier gains (touched highs of 1.352), falling near session lows now at 1.3412, down (-0.50%)
·      Commodity prices; Precious metals remained under pressure Friday, a day after finishing at the lowest mark since late July, after stronger-than-expected U.S. jobs data for November; gold prices dropped below $1,250 an ounce, down sharply on the week on a strong dollar/rising interest rate expectations; Energy futures higher after a volatile week on bearish inventory data
·      Treasury markets slip on signs of a stronger economy after the jobs report handily tops estimates; the 10-year yield up 2 bps at 2.38%, while the 30-yr at 2.78% and the 2-yr holds around 1.8%
Economic Data
·      Jobs data better as nonfarm payrolls rise 228K, topping the 195K estimate (though prior month was downwardly revised to 244K from 261K), with unemployment holding near 17-year low of 4.1%; the participation rate 62.7% vs prior 62.7% while average hourly earnings rose 0.2% MoM below the 0.3% estimate, while prior month revised down to (-0.1%); Nonfarm private payrolls rose 221K vs prior 247K and above the est. 195K, while manufacturing payrolls rose 31K
·      University of Michigan preliminary consumer sentiment survey for December fell to 96.8 from 98.5 prior month and was below the 99.0 estimate; Current economic conditions index rose to 115.9 vs. 113.5 last month while expectations index fell to 84.6 vs. 88.9 last month
·      Oct. wholesale inventories fell (-0.5%) to $605.3B from $608.3B in prior month and worse than the expected (-0.4%) decline; Sept. inventories unrevised at 0.1%; Wholesale inventories excluding oil fell 0.5% in Oct.
Sector Movers Today
·      Refiners; Bank America downgraded HFC to Underperform citing full valuation and raised its price target to $45 from $36 to reflect a lower corporate tax rate while downgraded DK as well to underperform- the firm said ANDV and VLO have the most upside in absolute terms, and any sector pullback on margins could offer a “particular” buying opportunity. U.S. refining outlook has improved given increased exports and wider crude spreads and sees a “reversion to a more traditional seasonal pattern in 2018
·      Packaging sector; KeyBanc downgraded BLL and SLGN to Underweight on concerns about industry fundamentals and valuations and are below consensus for both in 2018; both have significant leverage such that M&A/share repurchase catalysts will likely be limited in the next few months, and both are trading at close to all-time high multiples
·      Software; in video games, NPD Group, Inc. released video game sales for November that showed was up +27% (vs. Stifel est. +11%) and all categories posted double-digits growth, led by the Call of Duty franchise, the Nintendo Switch, and current gen hardware (EA, ATVI, TTWO gamers); Piper noted video game software sales were up 9% y/y;MSFT tgt raised to Street high $106 at Evercore; CLDR reported results above consensus expectations as billings showed upside
·      REITs; JP Morgan cut its 2018 estimate for average same store revenue growth to 2.5% from 2.7% as the analyst isn’t as optimistic about apartment REIT stocks as he was a few months ago (overweight ratings on AVB and ESS, and neutral ratings on AIV, CPT, EQR and UDR); at KBW Inc. upgraded AMH and GPMT to outperform saying investors should take a selective approach with real-estate stocks headed into 2018 and downgraded DHI and BXMT
·      ALXN +6%; as hedge fund Elliot Management, which has built a stake in Alexion Pharmaceuticals, is urging the company to take more action to boost its stock price, including exploring a sale, the New York Times reported https://goo.gl/tx6Kov
·      CDXC +8%; following research data on vitamin nicotinamide riboside (NR) in a mouse model of Alzheimer’s disease (AD) published in the journal Nature
·      CELG +3%; on biotech strength ahead of ASH conference this weekend/analyst upgrade
·      CLDR +6%; reported results above consensus expectations as billings showed upside
·      MNOV +4%; said it received positive top-line results from the company’s clinical trial of MN-166 in amyotrophic lateral sclerosis
·      MSFT +2%; tgt raised to Street high $106 at Evercore/ISI saying looks poised to reach a $1 trillion market cap by 2020, or sooner
·      OLED +5%; signed a multi-year portfolio license and material supply agreement with BOE Technology Group; target raised to $190 at Deutsche Bank on news
·      SIGM +22%; will be acquired by SLAB for $7.05 per share in a cash transaction valued at approximately $282M https://goo.gl/WG7DX6
·      AOBC -12%; reported Q2 results that beat expectations, but provided guidance that was significantly lower than the consensus, cutting its year forecast view
·      BLL -4%; downgraded along with SLGN at KeyBanc in packaging sector
·      COO -4%; slight beat for Q4 EPS/revs, but midpoint of year guidance fell short of estimates
·      LJPC -10%; downgraded to underweight at JP Morgan and cut tgt to $20 as believes consensus LJPC-501 pricing and sales estimates are at risk
·      RGR -6%; falls in sympathy with AOBC guidance and comments
·      VECO -15%; after China’s Fujian High Court ruled that Veeco Shanghai must “stop importing, making, selling and offering to sell Veeco EPIK 700 model MOCVD systems” in China
·      VIAB -3%; as media names pare recent gains (FOXA also lower)
·      Aqua Metals (AQMS) 7.15M share Spot Secondary priced at $2.10
·      Collegium Pharmaceutical (COLL) 1M share Spot Secondary priced at $17.75
·      Denali Therapeutics (DNLI) 13.888M share IPO priced at $18.00
·      Fennec (FENC) 2.353M share Spot Secondary priced at $8.50
·      Globalstar (GSAT) 38M share Spot Secondary priced at $1.20
·      Luther Burbank (LBC) 12.15M share IPO priced at $10.75
·      Party City (PRTY) 10M share Spot Secondary priced at $12.90
·      Tellurian (TELL) 10M share Spot Secondary priced at $10.00


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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