Monday, January 29, 18
U.S. equities are pulling back on Monday, down from record highs last Friday for major averages, as markets take a breather ahead of a very busy week of potential market moving catalysts. Stocks fall ahead of Janet Yellen’s last policy meeting as Federal Reserve chair (2-day FOMC meeting – with decision on Wednesday), and the first State of the Union address from President Donald Trump (Tuesday night). Of course this week also marks another volatile one for corporate earnings, with results expected for around 125 S&P components (including AAPL, AMZN, GOOGL, PFE, and MSFT) along with the all-important monthly jobs report on Friday. Economic data strong as consumer spending hits a 6-year high earlier today. The U.S. dollar rebounds, helped by 10-year Treasury yield topping 2.70% for the first time since 2014. Commodity prices give up some of last week’s gains (oil and gold), falling from multi-year highs on the dollar bounce. Profit taking early as bonds sell off as well.
Treasuries, Currencies and Commodities
· In currency markets, the dollar rebounds early, recovering some of last week’s drop as it got a lift from a jump in the yield on the benchmark 10-year Treasury note; the ICE U.S. Dollar Index (DXY) gained about 0.4% to around 89.40, following last week’s slide of about 1.6% that put it around 89.085, near 3-year lows
· Commodity prices; Precious metals pull back for a second straight session after gold closed at $1,362.90 last Thursday, its highest settlement since Aug. 4, 2016, driven higher by the greenback weakness (but as the dollar rebounds, commodity prices pare recent gains). Energy futures pulling back from three-year highs late last week, as energy prices have been buoyed by positive inventory data and a weaker dollar; profit taking after WTI crude posted a 4.5% gain last week
· Treasury market’s fall as yields rise; the 10-year Treasury traded with the highest yields since April 2014 this morning (trading above 2.71%), while the yield on the German five-year bond moved above zero for the first time since December 2015. The selloff comes as the dollar halts its recent slide ahead of a busy week for fixed-income investors.
· Consumer spending climbed 0.4% in December, capping off the biggest increase in household buying since 2011, and was in-line with economist estimates and advanced 3.1% for the full year, the largest increase since 2015; the savings rate fell to 2.4%, the lowest level since 2005. Personal income rose 0.4%, topping the 0.3% estimate
· The PCE index, the Federal Reserve’s preferred inflation gauge, edged up 0.1% in December (in-line with consensus), while the “core” rate that strips out food and energy rose 0.2% (in-line). The rate of inflation over the past year slipped to 1.7% from 1.8%, however; core rate flat at 1.5%.
Sector Movers Today
· Paper & Packaging/Containerboard stocks; sector active after KS +31%; agreed to be bought by WRK in a deal valued about $3.5B in the paper and packaging industry, with KS holders getting $35 per share in cash https://goo.gl/Xoc4Nf (shares of IP, PKG also active); note the group had risen Friday on optimism over a $50/ton containerboard price hike from International Paper
· Opticals lower; Piper downgraded three names in the sector, cutting NPTN to neutral believe China’s decision to source more optical components from domestic suppliers over the next few years could be a serious problem; cuts FNSR to neutral as believe demand trends will remain challenged for the next several quarters and the stock has historically not acted well during periods of margin compression; and cut AAOI to neutral on belief that 2018 will be a tough year for datacom transceiver suppliers given increased competition which will likely drive ASP and gross margin erosion throughout the year.
· Semiconductors; strength in crypto leveraged semis today (AMD, NVDA) as MKM Partners predicts strong quarter fueled by crypto business; WSJ reported that in initial disclosures about critical security flaws discovered in the company’s processors, INTC notified a small group of customers, such as Chines technology companies, but did not tell the U.S. government https://goo.gl/x5EGLr ; AAPL suppliers slipped early amid ongoing demand fears for the Apple iPhone X (SWKS, AVGO, CRUS)
· Large Cap Pharma; SNY agreed to buy Belgian biotech company Ablynx for 3.9 billion euros ($4.8 billion), its second big deal this month after buying BIVVhttps://goo.gl/Dvvkii ; AGN was upgraded to overweight at Barclay’s and raise tgt to $230 as believe AGN’s aesthetics franchise is undervalued at current levels; ABBVdowngraded at Leerink and BMO Capital after shares surged to record highs Friday after better earnings and increased forecast
· ABEO +3%; after company’s cell therapy received a Regenerative Medicine Advanced Therapy designation from the FDA (shares were up over 10%)
· AMD +2%; strength in crypto leveraged semis today (AMD, NVDA) as MKM Partners predicts strong quarter fueled by crypto business
· DPS +25%; as Keurig Green Mountain Inc. agreed to combine with them in a deal that will pay $18.7B in cash to shareholders https://goo.gl/VFHVQs
· IMMR +40%; announced a global settlement and license agreement with AAPL for a multi-year period (Craig Hallum believes an Apple license is likely worth ~$20-$25M per year in royalties)
· JEC +2%; upgraded to buy at UBS as expect higher energy prices, improving corporate confidence, and rising defense budgets to support capex and backlog growth
· KS +31%; agreed to be bought by WRK in a deal valued about $3.5B in the paper and packaging industry, with KS holders getting $35 per share in cashhttps://goo.gl/Xoc4Nf
· MATX +21%; potential new competitor Tote announced they have chosen not to move forward with an entrance into the mainland to Hawaii trade and Philly Shipyard has suspended construction of the vessel
· MELI +2%; tgt raised to Street high $415 at Stifel aa believe strong sales momentum continued through the holiday season particularly in Brazil and Mexico
· NFLX +2%; new record all-time high levels again today (rally since earnings last week)
· AAOI -6%; as optical stocks AAOI, FNSR, NPTN downgraded to neutral at Piper
· ABBV -1%; downgraded at Leerink and BMO Capital after shares surged to record highs Friday after better earnings and increased forecast
· ADNT -5%; shares fell after 1Q results missed estimates
· CYOU -8%; Q4 revs of $144.5M misses $150M estimate
· SOHU -15%; posted a wider than expected quarterly loss for Q4 on weaker revenue
· VZ -1%; after the Trump administration is considering nationalizing the next-generation, high-speed 5G wireless network in an effort to prevent Chinese spying on U.S. mobile traffic
· WYNN -7%; after falling -10% on Friday regarding allegations against Wynn Resorts Ltd. (WYNN) CEO accused of sexual misconduct/Macau’s Gaming Inspection and Coordination Bureau met with Wynn Macau management to seek information
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.