Mid Day Outlook: December 18, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Monday, December 18, 17
  
U.S. major averages open at fresh record highs once again amid growing confidence the Republicans will succeed in getting a major tax bill passed this week. Top U.S. Republicans said they expected Congress to pass a tax code overhaul this week, with a Senate vote as early as Tuesday and President Donald Trump aiming to sign the bill by week’s end. John Cornyn, the No. 2 U.S. Senate Republican, said in an interview on ABC’s “This Week” on Sunday that he was “confident” the Senate would pass the legislation, “probably on Tuesday.” Republican Representative Kevin Brady said he believed his party had the votes to pass the bill. The enthusiasm regarding a deal, along with an extremely busy morning of deal making (M&A deals in food space, tech, gaming and consumer finance – all details below) is sending stocks to levels never seen before. Dow industrials head for 70th record high of the year, poised to surpass 1995 as the most ever. Nasdaq 100 up as well at new record highs after making a full recovery from a November selloff, while the SmallCap Russell 2000 surges on tax deal optimism. The lone piece of economic data in housing sector, as the U.S. Home Builders’ Confidence index rises to 74 vs 69 last month (index at the highest level since July 1999). Financials again leading markets higher led by banks, consumer finance names. Global markets also higher as rally into year-end continues worldwide.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar giving back its gains from last week, with the dollar index (DXY) down near the lows off over -0.4% back to around 93.50 level (after touching highs of 94.22 mid-week last week after the FOMC followed through with a 25 bps rate hike); the dollar down about 0.6% against the euro and British pound, while Bitcoin rises again to around $20K
·      Commodity prices; both posting gains for oil and gold prices aided by the early weakness in the U.S. dollar; oil up slightly after trading flat last week while gold extends bounce after falling the 6-month lows recently on rate hike follow through by central banks/improving economy
·      Treasury markets slip early given the follow through strength for global equities; 10-yr yield only up a few bps around 2.37%, while the 2-yr at 1.83% and the 30-yr 2.71%; given the ongoing record highs for U.S. stocks, bonds really haven’t sold off
   
M&A deals
·      AES agrees to sell its 51% stake in the subsidiary that owns its business interests in the Philippines to SMC Global Power Holdings for $1.05B
·      Australia’s Aconex Ltd (ACX.AX) said it had received a A$1.56 billion ($1.2 billion), or A$7.80 in cash-per-share, buyout offer from U.S. software major ORCLhttps://goo.gl/g2RXXe
·      BETR +71%; to be acquired by HSY or $921M, with holders getting $12 a share, a 71% premium to Friday’s closing price (BETR has about $600M in debt) https://goo.gl/9u8Pjz
·      France’s Thales SA has agreed to buy chip maker Gemalto NV for EUR4.8B ($5.64B) in a deal that aims to create “a world leader in digital security,” the companies. Thales will pay 51 euros for each Gemalto share, representing a 57% premium https://goo.gl/Y2yHSh
·      HUM is in advanced talks to join with two private-equity firms in a deal to acquire home-care provider KND; the deal would value Kindred at $9 a share, the people said, a modest premium to Friday’s close at $8.60 https://goo.gl/mEgMfj
·      LNCE +6%; to be acquired by CPB for $4.87B, with holders getting $50 per share as it looks to expand its snack business amid sagging soup sales; the offer represents a 27% premium to Snyder’s close on Wednesday, a day before CNBC first reported it had hired an investment bank to weigh a potential sale https://goo.gl/i2BHu5
·      PENN agrees to buy PNK in a $2.8B deal, with PNK holders receiving $20.00 in cash and 0.42 shares of PENN stocks which equates to $32.47 per share https://goo.gl/cieMdD . In connection with transaction, BYD will acquire PNK’s Ameristar properties in St. Charles and Kansas City, along with Belterra Casino Resort and Belterra Park for about $575M in cash
·      TSS entered into an agreement to acquire Cayan, a payment technology company focused on integrated payment solutions and merchant acquiring, in an all cash transaction valued at approximately $1.05 billion https://goo.gl/p16BjK
·      Vietnam’s trade ministry said that Vietnam Beverage Co Ltd, a unit of Thai Beverage (TBEV.SI), was the only investor seeking to buy all shares of Vietnamese brewer Sabeco on offer worth nearly $5 billion. https://goo.gl/Hk64VX
 
Stock GAINERS
·      AKAM +13%; Elliott Management announced that it has taken a 6.5% effective ownership stake in Akamai (upgraded at Credit Suisse after news)
·      AMD +6%; upgraded to neutral at Macquarie saying expectations been reset/downside is limited
·      GIS +1%; upgraded to outperform at Wells Fargo and also rally in food on M&A deals
·      KLAC +5%; upgraded to overweight and $134 tgt at KeyBanc
·      SQM +9%; as Chilean stocks have surged after the surprisingly wide election win of former president and billionaire businessman Sebastian Pinera yesterday
·      TWTR +7%; upgraded to overweight and $27 tgt at JP Morgan as firm upbeat on product improvements at Twitter, including a new emphasis on live video and a better user interface
·      VIPS +44%; upgraded to buy from hold at Daiwa after TCEHY and JD buy a stake for $863M; TCEHY) will invest $604M for a 7% stake, while JD, which already owns about 2.5% in Vipshop, will invest $259M to increase its stake to 5.5% https://goo.gl/XxsiwG
 
Stock LAGGARDS
·      CSX -1%; announced CEO Hunter Harrison died on Saturday from “unexpected severe complications from a recent illness”, a day after he was placed on medical leave
·      ERII -7%; said testing related to its VorTeq technology has been suspended and that it’s unlikely testing will be completed by year’s end
·      MAT -2%; cautious comments by Jefferies saying sales tracking below guidance citing checks
·      NI 1%; weakness in utility stocks early/Wells Fargo downgraded a few names
·      OCLR -2%; downgraded at Needham saying faces limited growth prospects, which is likely to put downward pressure on gross margins in the coming year
·      PETX -7%; said AT-016 didn’t achieve efficacy success criteria 
 

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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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