Friday, February 2, 18
U.S. equities are down sharply, leading the S&P 500 to its first weekly drop in 2018, after a strong jobs report increased the likelihood of an interest rate hike next month. Energy stocks led losses after Dow component Exxon’s profit and output missed estimates. Concerns of increased borrowing costs have also hurt sentiment this week, with bonds rolling and yields surging to multi-year highs (10-yr up around 2.85% today, a more than 40 bps jump in just a month). Earnings also playing a hand in tech with AAPL and GOOGL shares falling after results last night, while AMZN trades to new all-time highs after its earnings and guidance beat. Note bonds have come under pressure on concerns that stronger wage gains could spur inflationary pressures, eroding the value of debt (today, hourly wages rose 0.3% in January to raise the 12-month increase to 2.9% from 2.6%, the fastest pace since June 2009). Today wraps up a busy week of news (State of the Union, FOMC meeting) and earnings (over 125 S&P companies reported), though next week marks another heavy dose of corporate results.
Treasuries, Currencies and Commodities
· In currency markets, the dollar rebounds off near 3-year lows yesterday, getting a boost after strong economic data (jobs beat, factory orders and sentiment also above expectations), and raises market odds of a rate hike by the FOMC at its March meeting. Bitcoin still down about 3%, but more than $1,000 points off lows of $7,614 (fell as much as 16%)
· Commodity prices lower, led by a more than 1% drop in gold prices as the dollar rebounds on higher rate hike expectations following the strong jobs report; oil prices fall from near 3-year highs recently, partially on the dollar spike, but also as investors rotate out of riskier assets (oil, stocks); moving lower ahead of the Baker Hughes rig data as well later (which has been rising)
· Treasury market’s fall and yields rise (broken record since the start of the year), with strong economic data raising chances of more rate hikes from the Fed this year (market counting on three – but data could push to four); the yield on the benchmark 10-yr climbs over 6 bps to around 2.85% (best levels since Jan 2014); the 30-year rose over 5 bps to 3.06% and the 2-yr yield was up slightly at 2.165% (traded above 2.18% earlier).
· Nonfarm Payrolls for January rose 200K, topping the 180K estimate and unemployment held steady at 4.1% (in-line with estimates); the participation rate steady at 62.7%; average hourly earnings 0.3% MoM above the 0.2% estimate. Nonfarm private payrolls rose 196K vs. prior 166K and also above estimates of 181K, while manufacturing payrolls rose 15K vs. the 20K est.
· University of Michigan Sentiment for January slipped to 95.7 from 95.9 in December (but above est. of 95) and compared to the preliminary reading of 94.4. Current conditions gauge dipped to 110.5 from 113.8 in the prior month; while the expectations measure advanced to 86.3 from 84.3; the year-ahead inflation expectations were unchanged at 2.7%
· Factory Goods Orders for December rise 1.7%, slightly above the 1.5% estimate while Factory orders for Nov. revised up to 1.7%; new orders ex-trans. for Dec. rise 0.7% and new orders ex-defense for Dec. rise 1.4% after rising 1.6% in Nov. Durables orders for Dec. rise 2.8% after rising 1.7% in Nov.; Consumer goods shipments for Dec. rise 0.7% after rising 1.4% in Nov.
Sector Movers Today
· Consumer Staples; CLX Q2 sales missed, raised year EPS due to tax benefits but said year gross margin is now expected to “decrease modestly” due to higher input costs tied to commodities; EL Q2 results topped consensus and raises year view as well; NGVC reported a stronger-than-expected comp, but much weaker-than-expected gross margins and EBITDA, as the company ramped up promotional activity; HSY downgraded to neutral at Credit Suisse as the stock merits a more narrow valuation premium to food peers than in the past due to the deceleration of its growth rate; POST shares to 52-week lows after earnings results; Stifel said U.S. alcohol trends weakened last year, in spite of an improving economy, characterized by weakening beer volume and slowing spirits sales growth (lowers tgts for BUD, SAM, TAP, RI-FR, BF/B, MGPI)
· Large Cap banks mostly lower; European banks fell as DB surprised with revenue that fell to the lowest in seven years and declines at businesses from transaction banking to equity derivatives, below consensus views; also hitting bank early, the Federal Reserve’s instructions for 2018 CCAR (Comprehensive Capital Analysis and Review) stress tests are tougher than expected (BAC, C, JPM, GS, WFC) according to Morgan Stanley with more intense recessions and lower asset prices; banks are not getting a boost early as bond yields touch news year highs
· Energy; Dow components CVX and XOM both reported earnings; XOM shares plunged, falling 15c short on EPS, while CVX also posted an earnings miss, and posted production misses for the two. In E&P and services, CPE reported that 4Q17 oil production beat the midpoint of the guidance range by 10% while capex was essentially in line with the guidance (have not seen from many other E&Ps recently), while guidance was slightly higher on capex and slightly lower on production; WFT said it sees cash flow negative in Q1, breakeven for full year and expects higher Q1 operating income/expects upward trend in North America rig count in 2018
· Hardware and component; NOK upgraded to buy at MKM, bullish on its multi-year 5G opportunity, and view the company’s management team as strong; HPQdowngraded to neutral at Mizuho on valuation and played out catalysts; VIAV shares jump as Q2 results showed revenue and EPS beat, while providing in-line March guidance and agreed to acquire the AvComm & Wireless T&M business from Cobham; VMW shares active after its largest shareholder Dell disclosed that it was evaluating a business combination with VMware. Dell said it was evaluation other business opportunities, including an initial public offering of common stock and “maintaining the status quo https://goo.gl/mTHwBd
· AMZN +6%; reported better than expected 4Q17 revenue and operating margins, while guiding 1Q18 revenue above consensus
· CHTR +5%; as earnings top views and announces subscriber additions
· DATA +11%; reported results that came in above consensus, though guidance softer
· DECK +8%; Q3 top and bottom line results handily topped consensus on stronger margins (52.2%) and guided year sales above views
· EW +6%; after 4Q sales growth of its TAVR valves showed the underlying strength of the market’s fundamentals
· MAT +8%; about a $2 bounce off lows after “kitchen sink” type quarter as posted quarterly loss of 72c vs. estimate for profit
· MSI +5%; on earnings and an acquisition
· VIAV +17%; Q2 results showed revenue and EPS beat, while providing in-line March guidance and agreed to acquire the AvComm & Wireless T&M business from Cobham
· AAPL -2%; reported modest upside to Dec-qtr and guided March-qtr below Street
· ACET -25%; as misses Q2 estimates and guides year below views
· CLX –4%; Q2 sales missed, raised year EPS due to tax benefits but said year gross margin is now expected to “decrease modestly” due to higher input costs
· DB -5%; surprised with revenue that fell to the lowest in seven years and declines at businesses from transaction banking to equity derivatives
· GOOGL -5%; as Q4 EPS missed estimates and margins fell short due to elevated cost of goods sold
· NGVC -27%; posted a stronger-than-expected comp, but much weaker-than-expected gross margins and EBITDA
· OMCL -9%; Q4 revenues came in below expectations on longer XT implementations due to size and customer push offs
· OSIS -18%; disclosed two separate investigations, prompting analyst downgraded despite posting 2Q revenue and EPS that beat estimates
· PI -44%; preannounced Dec-qtr revenue to $29–$30M vs. prior guidance of $28.25–$29.75M
· WY -3%; posted Q4 EPS and sales that fell below consensus, and said sees significantly lower earnings, adj. EBITDA in 1q
· XOM -5%; leads Dow Industrials lower after both it and CVX misses quarterly ests/production
· YRCW -19%; posted surprise 4Q loss, hurt by a shortage of equipment and a demand for drivers
· Sun Hydraulics (CEPU) 4.4M share Secondary priced at $57.50
· FTS International (FTSI) 19.5M share IPO priced at $18.00
· OpGen (OPGN) 3.692M share Secondary priced at $3.25
· Shell Midstream (SHLX) 25M share Spot Secondary priced at $27.20
· Sun Hydraulics (SNHY) 4.4M share Secondary priced at $57.50
· Viking Therapeutics (VKTX) 11M share Spot Secondary priced at $5.00
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.