Mid Day Outlook: January 11, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Thursday, January 11, 18
Stocks rally! Equities slumped for the first time of the year yesterday, posting small losses (but rebounding well off the lows by days end)…but the market “melt-up” is once again underway, with record highs (nearly) across the board on positive market sentiment. Overnight, Chinese regulators blasted a report that Beijing will scale back its U.S. bond purchases as “fake news.” The initial news about the potential scaling back in US debt had weighed heavily on bonds and market sentiment overall yesterday. The dollar is again coming under pressure, with the dollar index down over -0.5%, falling the most against the euro after minutes from the ECB’s December meeting were interpreted as bullish. Industrial and Transport stocks gained, led by airlines, after Delta raised its 2018 EPS forecast on tax law changes and improved cost control. All 11 main S&P 500 sectors higher in early trading, while the VIX remain under the 10 level. Crude futures grind higher, Brent rises to approach $70 per barrel while bitcoin weakens after South Korea’s justice minister reiterates proposal to ban cryptocurrency exchanges. Attention turns fully to earnings tomorrow with JPM, PNC and WFC reporting.
Treasuries, Currencies and Commodities
·      In currency markets, euro holding at highs, up 0.75% at 1.204 vs. the dollar following minutes from the European Central Bank’s December meeting earlier, which were interpreted as bullish (Euro was at 1.194 prior to minutes). The release of minutes from the European Central Bank’s December meeting showed the central bank could shift away from its ultra-loose monetary policy efforts this year; dollar turns neg vs. yen to 111.40 (off overnight highs 111.88); Overall dollar index (DXY) down over -0.5% on the morning; Bitcoin briefly traded below $13,000 this morning as concerns mount over a South Korean proposal to ban cryptocurrency exchanges.
·      Commodity prices; precious metals rally in response to the weaker dollar, with gold back near 4-month highs; energy futures higher again as a rally in oil took Brent crude closer towards $70 a barrel on Thursday, hitting its highest level since 2014; WTI crude also at best levels since December 2014 as momentum remains to the upside in commodity prices; weekly natural gas inventories fell -359 bcf vs. est. -333 bcf (larger draw bullish)
·      Treasury markets little changed after volatility yesterday; 10-yr yield touched highs above 2.59% yesterday before slipping to 2.54% late yesterday; 10-yr yield around 2.56% now as China said report that Beijing will scale back its U.S. bond purchases as “fake news.” The 2-yr yield little changed above 1.97% and the 30-yr under 2.9%
Economic Data
·      Producer Prices for December unexpectedly fell (-0.1%), below the expected rise of 0.2% (after rising 0.4% last month); the core PPI (ex: food and energy) also fell (-0.1%) vs. an expected 0.2% rise; final demand rose 2.6% YoY vs. est. up 3% and final demand ex food, energy rose 2.3% YoY vs. est. up 2.5%
·      Weekly jobless claims rose 11K to 261K (4-month highs), above the 245K estimate, while the prior week was unrevised at 250K; the 4-week moving avg. rose 9K to 250.75K in the week ending Jan. 6, while continuing claims fell 35K to 1.867M in the latest week
Sector Movers Today
·      Airlines; another day of positive news for the space which outperformed yesterday on better monthly data metrics from AAL and UAL; today, DAL raised its 2018 EPS view on U.S. tax reform-related benefits and its 4Q profit and operating revenue topped expectations – DAL said it sees 1Q unit revenue up 2.5%-4.5%; JBLU boosted RASM up about 1.8% YoY; HAwas downgraded to hold from buy at Argus on concerns about increased competition and rising costs
·      Asset managers; monthly AUM data out: 1) IVZ preliminary month-end assets under management (AUM) of $937.6B, reflecting no change month over month; 2) AB AUM increased 0.9% to $554B during December 2017 from $549B at the end of November; 3) TROW prelim end of month AUM $991B; 4) APAM AUM at end of Dec totaled $115.5B; 5) LMpreliminary AUM $767B as of December 31, 2017 (included flat long-term flows, consisting of net inflows in fixed income of $1.7B and in alternative of $0.2B, partially offset by net equity outflows of $1.9B)
·      MLPs; two analyst calls today for the sector that has rebounded over 13% from November lows of 249 for the Alerian MLP Index; 1) Wells Fargo said they are bullish midstream/MLPs for 2018, based on (1) improving fundamentals, (2) attractive valuations, (3) healthy demand for midstream/MLPs from credit, preferred and private markets, and (4) our perception of increased interest from outside capital (upgraded CEQP, HESMOKE and cut KMI and SEP); 2) Morgan Stanley said Midstream valuations are now more “defensibly” attractive when anchored to Utilities as a “base augmented by higher growth, higher yields, and tax benefits” (the firm upgraded TRP to overweight and downgrades EEP/EEQ to underweight and PSXP to EW)
·      Refiners; two analyst calls today; 1) Morgan Stanley said they see the constructive 2018 macro largely reflected in US refining valuations and coupled with an improved MLP outlook, they reiterate preference for diversified names with upside to cash returns (upgraded DK to overweight and cut PBF to underweight); 2) Wells Fargo said ANDV remains top pick in the refining sector and raised price target to $173 from $153, while maintain Outperform ratings on DK, PBF and VLO, but note modest upside potential for VLO
·      Software movers; PRGS delivered a solid 4Q and guided well above FY18 consensus EPS on a lower tax rate; COUP to offer $200M convertible senior notes; Cowen upgraded VMW to outperform and tgt upped to $150 saying VMW is very likely to outperform growth rate targets for their vSphere biz and total compute bookings CAGR; Cowen downgraded CTXS on valuation; APPN downgraded underweight by Morgan Stanley on elevated risks following the shares recent outperformance to valuation vs. peers
·      CVX +2%; 52-week high; upgraded to outperform at BMO Capital/rally in energy stocks on oil
·      CYH +15%; after Shanda Asset Management boosted its stake to 24%, expressing support for the hospital company
·      DPW +13%; as subsidiary Coolisys expects to begin delivering power supplies for crypto mining within next 40-45 days
·      DST +5%; to be acquired by SSNC in a deal valued at $5.4B, with holders receiving $84 per share in cash https://goo.gl/YyqCTV
·      KBH +9%; as Q4 revenue, EPS and orders beat estimates, and the company increased its 2018 gross-margin forecast
·      MGI +5%; has partnered with Ripple, provider of an enterprise blockchain solution for payments, to pilot XRP in their payment flows
·      POST +3%; said it is exploring strategic alternatives for its private brands business, including an initial public offering, a placement of private equity or outright sale
·      PRGS +15%; delivered a solid 4Q and guided well above FY18 consensus EPS on a lower tax rate
·      AKAM -1%; downgraded to underweight at KeyBanc saying a takeout unlikely
·      CTXS -1%; downgraded at Cowen on valuation
·      ENDP -2%; receives grand jury subpoena from US Attorney’s Office in Florida, seeking documents and information relating to products containing oxymorphone
·      HMNY -9%; to issue $60M in Convertible Notes
·      LPCN -52%; fails to win FDA Panel’s backing on Testosterone Drug as the FDA advisory committee voted 13-6 that the overall benefit/risk profile of Tlando isn’t acceptable to support approval as a testosterone replacement therapy
·      TSCO -2%; downgraded at Wedbush to neutral on valuation


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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