Mid Day Outlook: February 14, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, February 14, 18
A quick about face higher for major averages after early weakness! Equities were under pressure as inflation fears were stoked following a “hotter” than expected monthly consumer prices reading. U.S. consumer prices rose 0.5% in January, the biggest monthly increase since August 2012 and above estimates for a 0.3% rise, while core CPI (ex: food & energy) rose 0.3%, also topping estimates. Interest rate sensitive sectors such as utilities and towers feeling the impact of the report, as it adds to already growing expectations that the Federal Reserve will raise interest rates with four quarter-point moves this year, rather than the three they penciled in last December. It looked as if the S&P 3-day win streak would be in jeopardy following the report, but markets quickly recovered, while the dollar also reversed from its highs, erasing gains and moving to the lows. Bond yields jump as well as gold prices, while stocks continue to show tremendous resiliency in the face of a rising rate environment.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar has now given back just about all the CPI rally and is now lower on the day. The U.S. dollar initially rallied higher after stronger January consumer price inflation data as headline CPI rose 0.5% in January, compared with a forecast of 0.3%. The Dollar Index (DXY) spiked to highs of 90.12 after the data, but has since fallen back around 89.50, falling vs most currency rivals; Bitcoin holding strong gains, up around 8% above $9,200; dollar falls to 15-month lows of 106.77 vs. the Japanese yen
·      Precious metals with a big spike, rising around 1.5% to $1,350 an ounce, looking to add to its 3-day win streak as the dollar reverses lower and inflation expectations rise. Rising inflation could provide a lift for gold over the short term because it is often viewed as a hedge vs. rising prices
·      Energy futures reverse losses and turn higher following inventory data; the EIA reported a smaller than expected weekly build of 1.84M barrels (vs. est. 3.1M build), while gasoline stockpiles jumped 3.59M barrels vs. est. 1.8M and distillates fell -459K barrels vs. expectation to remain unchanged; OPEC said it would stick with production cuts this year despite rising US output – Saudi energy minister said
·      Treasury yields rose after a stronger-than-expected rise in inflation, as the January consumer price index came in well above consensus views (0.5% vs. est. 0.3% and higher core reading as well); the 10-yr yield rose 3.5 bps to 2.875% after sitting as low as 2.819%. The 2-year note yield spiked 4.9 bps to 2.155% (most impacted on n-t interest rate hikes), while the 30-year bond yield rose 1.8 bps to 3.146%. Markets have cited wage gains, a weak dollar, fiscal stimulus and a tight labor market for stoking inflationary pressures.
Economic Data
·      Consumer price index (CPI) for January rose a “hotter” than expected 0.5% (above the 0.3% est.), and its core gauge, stripping out volatile food and energy prices, rose 0.3% (above the 0.2% est.); CPI YoY rose 2.1% vs. est. 1.9%. The rise in the cost of living last month was driven by higher prices at the gas pump. But the cost of food, housing, medical care and car insurance also rose.
·      Retail Sales for January fell (-0.3%) vs. an expected rise of 0.2%; retail sales less autos unchanged in January, well below the 0.5% estimate; auto sales fell slightly in December and they sank 1.3% in January; gasoline station posted a 1.6% increase in sales as prices at the pump rose
·      Business Inventories for December rose 0.4% MoM, slightly above the 0.3% estimate, while business sales rose 0.6% in Dec. after rising 1.4% the prior month
Sector Movers Today
·      Retailers; sector weaker initially as the reported January U.S. retail sales down -0.3% vs expectations of a 0.2% gain, suggesting consumer spending started current quarter with less momentum, following a 3.8% annualized increase in 4Q (shares of COST, M, HD, TGT, ANF, NKE among movers); LULU 1.2M share Block Trade priced at $76.25; on a positive note, FOSL shares spiked as much as 80% after posts an unexpected comp sales beat of 2% vs. an expected decline of (-6%) and better Q4 sales (also high short interest); TGT upgraded to buy at Baird
·      Auto sector; auto parts retailers and dealers weak after data show purchases at auto dealers dropped (-1.3%), the most since August; GM, F, ORLY, AZO, AAP, GPC, MNRO, KMX, ABG, AN, GPI, PAG, and SAH among movers; LAD reported Q4 EPS and sales above consensus; LEA boosts share buyback authorization to $1.5B and raises dividend
·      Casino, Lodging & Leisure; in lodging, HLT Q4 EPS/revs/RevPAR stronger than expected, though Q1 guidance falls short of views; WYN mixed Q4 as EPS beats but revs of $1.25B ,misses the $1.39B estimate and guidance for year well below consensus; in leisure, BC was upgraded to outperform and $70 tgt at Wedbush
·      Refiners; Citigroup upgraded shares of ANDV, VLO and DK to buy saying the U.S. is at the cusp of an epochal hydrocarbon market share transformation. Readily-available, relatively-cheap crude will create a sustained cost advantage for US refiners, while global capacity growth constraints and IMO 2020 act to expand the available market. They see a 20%+ FCF/sh 4-yr CAGR for the group over our forecast period
·      Software movers; CSOD reported a 4Q billings beat highlighted by a strong all around quarter with large deal success across geographies; CARB Q4 revs slightly below estimates due to lower license revenues, but subscription business did well/EPS beat and acquired Mozy for $185M in the cloud-backup market; CALX positive earnings results and guidance; TWLO rises as 4Q results beat estimates for revenue amid a narrower-than-expected adjusted loss
·      Advertising and Marketing; IPG 4Q results which beat estimates, adding to positive views on the industry from Japanese advertising company Dentsu and Europe’s Publicis; CRTO shares surged as posted better-than-expected financial results for Q4 and delivered a strong outlook (Q1 revs seen $230M-$235M vs. est. $205M);
·      CMG +15%; appointed Brian Niccol as CEO (effective March 5) coming from Taco Bell (YUM)
·      CRTO +28%; posted better-than-expected financial results for Q4 and delivered a strong outlook
·      DBVT +26%; received permission to seek U.S. FDA approval to sell its experimental peanut-allergy patch
·      FANG +2%; posted a strong Q4 update, including the initiation of a 50c dividend
·      FOSL +56%; posts an unexpected comp sales beat of 2% vs. an expected decline of (-6%) and better Q4 sales (also high short interest)
·      IPCC +17%; KMPR agrees to buy IPCC for $129 in cash and stocks, in deal valued at about $1.4B ($51.60 a share paid in cash, rest in stock) https://goo.gl/27TUYb
·      LAYN +18%; to be acquired by GVA for $17 per share in stocks, in deal valued at $565M including assumption of debt https://goo.gl/VDQYa8
·      NKTR +7%; announced partnership with BMY for NKTR-214
·      TWLO +15%; 4Q results beat estimates for revenue amid a narrower-than-expected adjusted loss
·      UNP +2%; upgraded to buy with $151 tgt at Citigroup
·      CAR -7%; Goldman Sachs cut the car rental sector to cautious and downgraded CAR to sell saying hurricane benefits begin to wane and headwinds resume
·      GLMD -47%; after its “Arrive” trial of Aramchol in HIV associated lipodystrophy failed to reach its primary target/ trial showed no difference between patients receiving Aramchol vs placebo
·      GRPN -11%; mixed Q4 results as EPS missed, but lower Ebitda and revs guidance weigh
·      HCP -3%; extended weakness in REITs, falling to 52-week lows
·      OXY -2%; after Q4 production missed, along with lower than expected Q1 production guidance and its FY capital budget was also slightly higher than Street estimates
·      SHPG -2%; as Q4 results topped views but guidance for $14.90-$15.50 came in well below the $15.95 estimate with lower gross margins
·      TTPH -50%; after a Phase 3 trial of its lead drug eravacycline for treatment of complicated UTI (cUTI) failed
·      Biofrontera (BFRA) 1.22M share IPO priced at $9.88
·      Black Knight (BKI) 8M share Spot Secondary priced at $46.70
·      Blink Charging (BLNK) 4.35M share IPO priced at $4.25
·      lululemon (LULU) 1.2M share Block Trade priced at $76.25
·      Motus GI (MOTS) 3.5M share IPO priced at $5.00
·      Navios Maritime Partners (NMM) 18.4M share Spot Secondary priced at $1.90
·      Pieris Pharmaceuticals (PIRS) 5.5M share Spot Secondary priced at $8.00
·      RA Pharmaceuticals (RARX) 8.333M share Spot Secondary priced at $6.00


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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