Mid Day Outlook: April 10, 2018

Scott GreenDaily Market Report

U.S. equities are moving higher rose for a second day (rebounding after yesterday’s late day sell-off that nearly wiped out big gains early) as comments from Chinese President Xi Jinping overnight to open the country’s markets is easing investor concerns over a trade dispute between the two countries. Xi’s pledges, made at a major conference in Asia, were on 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. Shares of autos such as GM and airplane maker BA both advanced after China’s Xi was more open about trade with the U.S. However, 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). Other factors for markets include: 1) 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, 2) FB CEO Mark Zuckerberg testifies ahead of Senate this afternoon regarding data privacy and Cambridge Analytica data breach, 3) Russia markets plunge along with its currency (Ruble) falling to the weakest level since December 2016 given the toughest U.S. sanctions yet combined with an escalation in tensions over Syria and 4) economic data with PPI coming in a little “hot” today ahead of the CPI report tomorrow.

Treasuries, Currencies and Commodities

·      In currency markets, the U.S. dollar slips a second day, as 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.” The euro knee-jerked higher before paring gains up 0.25% 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) – but then pared gains

·      Commodity prices: Precious metals rebound off earlier lows as the dollar remains weak, while oil prices buoyed by a “risk-on” trade in stocks and energy and after Saudi Arabia said to signal ambition for $80 oil price, according to Bloomberg (also not inventory data tonight – API)

·      Treasury markets are little changed, with the 10-yr around yesterday levels of 2.794% ahead of Consumer Price Index (CPI) report tomorrow

Economic Data

·      Producer Price Index (PPI) for March rose 0.3%, 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

Sector Movers Today

·      Airlines positive monthly metrics but shares slide; 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

·      In banking research, Raymond James upgraded shares of PACW, PNFP, CBSH and downgraded CFR ahead of earnings and also adjusting EPS estimates/target prices on a total of 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

·      Oil services; 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

·      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

·      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 ETNto 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)

Stock GAINERS

·      FRAC +9%; upgraded to Outperform at BMO Capital and see 36% upside to $20 target

·      KPTI +6%; as won fast track designation from the U.S. FDA for a treatment (Selinexor) for multiple myeloma, a blood cancer

·      NVDA +4%; upgraded to overweight at Morgan Stanley as see shorter-term drivers in gaming offsetting crypto weakness

·      PAY +51%; 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

·      SPPI +21%; 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

·      TEN +5%; Carl Icahn (IEP) 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

·      ULTA +3%; 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

·      WATT +16%; said the FCC has certified the company’s near-field transmitter, WattUp, as compliant with safety, electromagnetic compatibility, and regulatory requirements

·      XOM +2%; added to Bank America US 1 list and rising oil prices

Stock LAGGARDS

·      EMKR -8%; 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

·      HSY -3%; downgraded to sell at UBS as US chocolate headwinds accelerate and gross margin headwinds escalate/lowering FY19 EPS 4% below Street

·      SELB -10%; after reporting three-month Phase 2 data for SEL-212 and raised concern about the higher flare rates in the new cohort of patients

·      TUP -10%; 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).

·      VTVT -72%; 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

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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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