Mid Day Outlook: April 4, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, April 4, 18
  
U.S. equities open significantly lower, sending the S&P 500 back below its 200-day moving average support (2,592), Dow Industrials falling over -500 points and the Nasdaq opening in correction territory for the first time in two-years after China officially retaliated against the U.S., by issuing tariffs of its own on U.S. goods. The U.S. and China each detailed their plans to levy tariffs on imported products in their escalating trade war: 1) The U.S. proposed 25% tariffs on products from China worth about $50 billion, including semiconductors, lithium batteries, steel, electronics components, dishwashers; 2) China issued a similar proposed amount of $50B on 106 U.S. made products, such as aircraft, autos and soybeans. Shares of machinery (DE, CAT), aircraft (BA), autos (GM) and agriculture were among the hardest hit, as well as another downdraft in technology shares. However, investors swooped in on the open, helping rally major U.S. averages off their lows. As the trade war fears grab headlines, a stronger than expected private payroll report went unnoticed, with ADP showing 241K jobs were added in March, above the 205K estimate, ahead of the nonfarm payroll report on Friday. Bonds and gold rally, while oil slips.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar with mixed news this morning: 1) falling overnight after trade war fears with China intensify, though the greenback rebounded off lows following a stronger ADP private payroll report (rising rate hike expectations further from the Fed). However, Fed’s Bullard said the U.S. central bank doesn’t have to raise interest rates further, as monetary policy is close to “neutral”, taking a little steam out of rate hike expectations; dollar index holding above 90. Bitcoin lows, falling more than 7% and dropping below the $6,900 level.
·      Commodity prices: gold rises as markets move back into the defensive/safe haven related assets (bonds, gold rally); Gold prices rise back above $1,340 an ounce. Energy futures fell around 2% earlier on trade war fears and general “risk-off” attitude, but pared losses following a larger than expected weekly drawdown in crude oil inventories reported by the EIA (-4,617M barrel draw for WTI crude vs. the -2M barrel draw estimate, though Cushing crude +3,666M)
·      Treasury market’s rebound after yesterday’s decline, with yields moving lower as investors move into safe-haven related plays; yesterday, Treasury prices dropped yesterday, pushing up yields, as the yield on the benchmark 10-year Treasury note climbed 5.3 bps to 2.784%, the biggest one-day yield climb since Feb. 14, snapping a fourth straight session of falling yields, while the 2-year note yield rose 4.2 basis points to 2.286%, its largest one-day yield gain since Feb. 21
 
Economic Data
·      Private payroll data stronger as ADP said private-sector employers expanded their workforce by a seasonally adjusted 241K jobs last month, topping the 210K estimate and marked the fifth straight gain above 200,000 (prior month revised to 246K from 235K). Small firms added 47,000 jobs in March, medium-sized businesses added 127,000 and large companies added 67,000
·      ISM Non-manufacturing index at 58.8 vs 59.5 prior month and mostly in-line with the 59.0 estimate; new orders fell to 59.5 from 64.8, its decline largest since Aug. 2016 while supplier deliveries gauge highest since Nov. 2005, rising t0 58.5 from 55.5; other components: employment rose to 56.6 vs 55.0 and prices paid rose to 61.5 vs 61.0
·      U.S. Feb. Factory Goods Orders rise 1.2%, below the 1.7% estimate, while Factory orders for January were revised up to -1.3% from -1.4% previously; New orders ex-trans. for Feb. rise 0.1% and new orders ex-defense for Feb. rise 0.9% after falling 0.8% in January
   
Sector Movers Today
·      Housing & Building Products; Building products sector downgraded to neutral at Goldman Sachs on the greatest level of risk since began sector coverage in 2015; said shifted sector coverage to a more defensive and value-oriented mindset focusing primarily on pricing power/Goldman Sachs downgrades WHR and APOG to sell from neutral and OCto neutral from buy; in homebuilding, LEN Q1 EPS, revs and new orders (rose 30% vs. 19% est.) topped consensus
·      Oil services; popular sector among analysts this week (recent upgrades of SLB and BHGE the last few days); today WFT upgraded to hold at Jefferies as firm said shares reflect low expectations for divestitures (proceeds/timing) and non-N.A. recovery/separately, Jefferies says it revised 1Q18 oil service estimates lower; SunTrust lowers estimates onHAL, BHGE to account for slightly weaker OFS results in Q1-18 resulting from well-known weather and sand supply issues
·      Consumer Staples; Morgan Stanley said they continue to be concerned about a GM squeeze in the Staples group in Q1 with decelerating pricing at the same time commodities are re-inflating, on top of weak organic sales growth with demand fragmentation and weak pricing in the US and local players gaining share in emerging markets (cuts tgts PG PT $85 from $92; CLX $128 from $133; EPC to $53 from $56; TUP to $60 from $66…boosts PT on EL to $160 from $147); SAM was upgraded to outperform at Cowen citing strong non-beer trends
·      Autos; a day after strength in the group given stellar March US sales data from the likes of GM, FCAU and Ford, auto dealers slide after KMX Q4 results missed analysts’ expectations, and the company said it was disappointed by the comparable store unit sales performance (shares of LAD, ABG, AN, GPI, PAG, SAH, CVNA moved in sympathy);TSLA deliveries of 29,980 missed consensus of above 36K, although Model 3 deliveries of 8K came in slightly better/said built 2,020 Model 3 cars in the last seven days, trailing its target for a 2,500-unit rate (fears of a needed capital raise remained a concern for several analysts today)
 
Stock GAINERS
·      HSIC +1%; upgraded to outperform at Leerink saying AMZN, PDCO and FTC fears are overdone and sees as leader in stable market
·      KIM +2%; defensive REITs seeing early strength, lifting several names
·      LEN +7%; Q1 EPS, revs and new orders (rose 30% vs. 19% est.) topped consensus
·      PTI +14%; after the company’s combination treatment for cystic fibrosis received a “fast track” designation from the FDA
·      TCAP +10%; said plans to stop paying a quarterly dividend starting with 2Q 2018, as sells portfolio for $981M
 
Stock LAGGARDS
·      AYI -12%; Q2 EPS that missed estimates and cautioning that market growth may remain sluggish for the remainder of the year
·      BA -3%; one of most affected companies from the China $50B tariffs to US products as the country focused on 25% tariff on U.S. aircraft
·      CLDR -38%; after two strong quarters, shares fall given bookings miss, restructuring, and guided to FY19 revenue growth of 20% vs. consensus’ 27% 
·      ENDP –7%; downgraded to neutral at Mizuho citing a combination of lower revenues, delayed pipeline contribution, a lack of 2018 catalysts and the persistent opioid litigation overhang
·      MTD -3%; on tariff fears (Bloomberg noted China accounted for about 16% of 2017 revenue)
·      NVDA -3%; and AMD shares weak as Chinese company Bitman has revealed a specialized Ethereum mining system (Antminer E3) to ship in July for $800
·      PLAY -3%; mixed Q4 EPS/rev results but issued soft FY19 guidance and a miss on Q4 comps

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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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