Tuesday, April 10, 18
Equity Market Recap
- S. stocks full-throttle higher, getting a much needed boost on the macro front after Chinese President Xi struck a conciliatory tone on trade during his keynote address to the annual Boao forum last night, helping alleviate concerns with the U.S. regarding trade after recent reports of talks between the two broke down last week. Xi pledges included lowering tariffs on imported autos and other products, enforcing the legal intellectual property of foreign firms, and improving the investment environment for international companies. The news came as a welcome relief for volatile markets and President Trump tweeted that he was “very thankful for President Xi of China’s kind words” on tariffs and automobile barriers, “also, his enlightenment on intellectual property and technology transfers.” While the news was a positive near-term for trade wars fears, the macro picture remains larger at the present time.
- There are still many other macro stories for investors to focus on ahead of the start of earnings Friday (when JPM, C, WFC, PNC report). One other top story remains Washington as the FBI raided the offices and home of U.S. President Donald Trump’s personal lawyer Michael Cohen in a series of probes involving close Trump associates, (announced last night). Several more headlines today related to this and the ongoing investigation from special agent Mueller.
- Another hot topic remains Russia, as its currency and markets plunged, as the Ruble fell to the weakest level since December 2016 given the toughest U.S. sanctions yet combined with an escalation in tensions over Syria
- Facebook’s CEO Zuckerberg testified before two Senate committees about the social network’s use of data (tomorrow he’ll be back, to testify before a House of Representatives committee) after last month’s revelations that Cambridge Analytica, a political-consulting firm, shared 87M Facebook users’ data with third parties raising arms from lawmakers and privacy groups.
- Lastly, economic data will be closely watched tomorrow morning as CPI data for March will be released at 8:30 AM EST (est. 0% and to rise 0.2% for core CPI) after the PPI monthly report came in a bit “hotter” this morning. The data will be another look into inflationary measures.
- Producer Price Index (PPI) for March rose3%, above the 0.1% estimate, while the BLS said final demand producer prices rose 0.2% in February; core prices for March, excluding food & energy rose 0.3% vs. est. up 0.2% while final demand ex: food, energy rose 2.7% y/y vs. est. up 2.6%
- Wholesale Inventories for February rose 1% vs. estimate up 0.8%; Feb. wholesale inventories initial estimate was 1.1% gain; Jan. inventories revised to 0.9% from 1.0%; Wholesale sales rose 1% in Feb. after falling 1.5% the prior month
- Commodity prices advance across the board: Precious metals rebound off earlier lows as the dollar remains weak, and June gold climbs $5.80, or 0.4%, to settle at $1,345.90 an ounce. Even though stocks jumped today, investors still looking to gold for safety amid ongoing probes of Trump personal lawyer, and geopolitical tensions with China (trade) and Russia (sanctions). Meanwhile, industrial metals such as copper and aluminum have rallied over the last few days as well. Energy prices jump again, with WTI crude rising $2.09, or 3.3% to settle near the highs of the day ahead of inventory data tonight and tomorrow, but getting a boost earlier from a weaker dollar and after Saudi Arabia said to signal ambition for $80 oil price, according to Bloomberg. Natural gas prices slipped 3.7c or 1.4% to settle at $2.656 mln btus. Brent crude settled at $71.04 per barrel and traded to its highest level since December 2014.
- The U.S. dollar slipped a second day, falling vs. most counterparts, but rallied against the Japanese yen after Chinese President Xi Jinping’s promise to cut import tariffs eased concerns about a trade conflict between China and the U.S. However, the euro got a boost after the ECB’s Nowotny said “I would have no problem with moving from -0.4% to -0.2% as a first step,” when referring to rates. The euro knee-jerked higher before paring gains vs. the dollar at $1.2350. The Canadian dollar extends recent gains vs. the dollar as well on NAFTA hopes and rising oil prices (trades to 6-week highs), falling below the 1.26 level. Relatively high-yielding currencies such as the Australian dollar New Zealand dollar and the Canadian dollar all rose. Bitcoin prices gained over 2% but still remains under the $7,000 level.
- Bonds were mixed, as the yield on the benchmark 10-year Treasury held steady for most of the session around the 2.79% level, while the shorter-term 2-yr yield rose above 2.31% ahead of tomorrow’s monthly consumer price index report on inflation. The US Treasury auctioned off $30B in 3-year notes at a yield of 2.45% (highest since May 2007) with the bid-to-cover at 2.85 vs. prior 2.94 and indirect bidders awarded 47.6% of auction (lowest amount since September).
Sector News Breakdown
- Auto sector; shares of GM and Ford benefit from looser tariff talk from China overnight; VLKAY is set to name the head of its namesake brand, Herbert Diess, as its next CEO to succeed Matthias Mueller, in a surprise shake-up of top management as the supervisory board will vote on the change in top leadership at a meeting on Friday, according to various reports today; in auto parts, Carl Icahn (said he was selling auto parts maker Federal-Mogul to TEN in a $5.4 billion deal that will also give him a stake in the company https://reut.rs/2GMM0UA
- Retailers; ULTA was upgraded to overweight at Piper and tgt raised to $236 as Ulta Beauty overtook Sephora as the top brand for average-income teens according to its survey; Retail defaults hit an all-time high in the first quarter at 28, compared with 23 in the same period a year ago, Moody’s Investors Service said
- Consumer Staples; HSY downgraded to sell at UBS as US chocolate headwinds accelerate and gross margin headwinds escalate/lowering FY19 EPS 4% below Street; TUP preannounced 1Q18 results, lowering sales and EPS guidance on micro and macro challenges and an unforeseen EPS impact related to U.S. tax reform (GILTI tax); WMT expands online grocery program through Postmates deal; SMPL Q2 sales of $109.3M topped the $101M estimate
- Oil prices rise, climbing for a second day, after Bloomberg reported Saudi Arabia wants to get oil prices near $80 a barrel to pay for the government’s crowded policy agenda and support the valuation of state energy giant Aramco before an initial public offering. Oil prices also active ahead of weekly inventory data tonight (API) and tomorrow morning (DOE). United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui said on Tuesday that the global oil market would rebalance this year.
- Energy top stories: TOT said that it has signed a memorandum of understanding with Saudi Aramco to build a petrochemical complex in Jubail, Saudi Arabia, representing an investment of about $5 billion; the WSJ reported that XOM is in talks with Qatar over a partnership that could see the nation owning U.S. gas; Russia’s pipeline monopoly Transneft said that oil flows via Kuibyshev-Tikhoretsk pipeline were suspended due to an oil spill
- In research; XOM was added to Bank America US 1 list saying it is trading close to levels when Brent troughed at $28. In absolute terms the shares ‘discount’ the lowest l/term oil price in the sector at $48 per bbl. BMO Capital positive on pressure pumping sector, saying to buy stocks before the 1Q18 air pocket, and resulting 25-35% selloff, turns into fundamental tailwinds over the next six months/and upgraded FRAC to Outperform and see 36% upside to our $20 target/said expect OFS stocks to report 1Q18 results slightly below current consensus
- Large Cap banks another strong move higher ahead of earnings this week from the big banks (and next week), getting a lift from recent rate hikes by the Fed; in research, Raymond James upgraded PACW, PNFP, CBSH and downgraded CFR ahead of earnings and also adjusts EPS estimates/target prices on 14 banks as anticipate relatively solid results in 1Q18, buoyed by the December and March rate hikes and benign credit trends; MTB was downgraded to sell at UBS saying share price outperformance in 1Q18 has left the risk to reward profile unattractive
- Asset managers; Morgan Stanley remains cautious on traditional asset managers given secular change but note the group has de-rated by -2.0x-turns YTD/lowering 1Q EPS est -1% for the group but with a wide skew (Alts EPS -60%)
- Mortgage insurers active again; prices declined yesterday, with MTG, ESNT, RDN all down early (group fell Monday after MTG said it is cutting borrower-paid premiums by 11% (MTG downgraded by both RBC and Bank America today on news)
- Services; PAY agreed to be acquired by an investor group led by Francisco Partners and including British Columbia Investment Management Corporation for $23.04 per share in cash, in a total deal valued at approximately $3.4B https://reut.rs/2JzUksv
- Large Cap Pharma; VTVT shares plunge as reported negative topline results from its Phase III study in mild Alzheimer’s Disease patients (STEADFAST)/Part A did not achieve statistical significance in either of its co-primary endpoints – ADAS-cog and CDR-sb; ABBV and NBIX report a PDUFA target date of 3Q 2018 for Elagolix in endometriosis-associated pain; SPPI rises as data from Phase II clinical trial assessing its poziotinib in EGFR exon 20-mutant non-small cell lung cancer (NSCLC) patients showed a significant treatment benefit
- Biotech movers; the sector (IBB) outperformed yesterday, rising as much as 3% before paring gains with the late day mkt pullback after AVXS agreed to be acquired by NVS in a $8.7B deal, sparking buying interest in other gene therapy related stocks (BLUE, QURE, ABEO, etc.); LOXO and ILMN in pan-Cancer companion diagnostics pact; KPTI said it won fast track designation from the U.S. FDA for a treatment (Selinexor) for multiple myeloma, a blood cancer; SELB falls after reporting three-month Phase 2 data for SEL-212 and raised concern about the higher flare rates in the new cohort of patients
- Healthcare services; AMN announced two acquisitions last night that together add TTM revenue of nearly $150M and will be immediately accretive according to Benchmark (acquisitions of MedPartners, Phillips DiPisa and Leaders For Today); BDX was upgraded to buy at Citigroup as see a strong setup for upside to numbers in FY18 driven largely by the BD side of the business; EVHC shares fell early afternoon after Axios reported UNH will terminate its contract with them no later than January 1, 2019”
Industrials & Materials
- Multi Industry & Machinery; Goldman Sachs said multi-industry and industrial sentiment has turned more bearish amid trade wars, price/cost concerns and peaking U.S. ISM/global PMIs, as the firm adds ITW to the America’s Conviction Buy List while upgrading ETN to buy from neutral and downgrading CGNX to neutral from buy as expects 2018 to be a transition year; MSM Q2 results missed and 3Q earnings forecast midpoint missed analysts’ estimate (GWW, HDS active); CBI and GRA both outperformed on no specific news
- Transports; in airlines, UAL said Q1 revenue should come in at the high end of guidance, and capacity at the low end, while AAL said it sees Q1 TRASM up 3-4% vs. 2-4% previous guidance, and CASM up 3% vs. 2.5% previous guidance and pretax margin is now guided to 4-5% vs. 2-4% previously – positive data lifts DAL, JBLU, LUV (group gave up gains amid a spike in recent days in aluminum and steel prices); Despite the pullback from highs in airlines, the transport sector strong, with Dow Transports rising more than 1.5% early on, led by CAR and truckers
- Aerospace & Defense; Dow component BA shares advanced after China President Xi spoke more “softly” about tariffs with US in speech last night, lifting shares; Reuters reported Airbus has suspended studies focused on revamping its A320neo family
- Metals & Mining; rally in aluminum prices and stocks (CENX, AA) continue a second day; group benefitting from the impact of U.S. sanctions on Rusal, the world’s biggest supplier of the metal outside of China and a major producer of alumina/expectations aluminum market may tighten quickly due to possible tariffs on Chinese imports; Copper prices surged after Chinese President Xi Jinping promised foreign companies greater access to China’s financial and manufacturing sectors, pledging Beijing’s commitment to further economic liberalization (FCX)
Technology, Media & Telecom
- Internet; NFLX tgt raised to $350 at Morgan Stanley on increased conviction in the company’s ability to drive penetration gains and long-term pricing (tgt also raised to $330 at Raymond James); overall Internet sector another good day after rising yesterday; FB shares jumped as CEO Zuckerberg testified in day one of two regarding the Cambridge Analytica data breach.
- Semiconductors; NVDA upgraded to overweight at Morgan Stanley as see shorter-term drivers in gaming offsetting crypto weakness, and progress in data center inference expanding the long-term opportunity; overall semi index strong, with the Philly Semi index (SOX) rising more than 3% at one point amid broad strength in tech
- Hardware and components; STX upgraded to overweight at Morgan Stanley and raise tgt to $72 as exponential data growth in the next computing cycle, share gains in near-line drives, and low inventory levels make them more constructive; EMKR negatively preannounced Mar revs of $18-19M compared to previous guidance of $21-23M citing excess inventory at a large CATV customer and order pushouts at another; WATT said the FCC has certified the company’s near-field transmitter, WattUp, as compliant with safety, electromagnetic compatibility, and regulatory requirements
- Media & Telecom; WSJ reported that Sprint (S) and TMUS restarted deal talks after collapsing last November, but noted talks are only preliminary https://on.wsj.com/2qlDNjb ; tower stocks (AMT, CCI, SBAC) declined following the Sprint story; Cable stocks remains weak (CMCSA, CHTR); LYV upgraded to Buy following recent pullback at Citigroup
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.