Mid Day Outlook: April 13, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Thursday, April 13, 18

Equities have trended lower after trading higher overnight, dragged down by a decline in banks after mixed quarterly results and some cautious about the environment spooked some investors. JPM CEO Dimon, after beating earnings on slightly lower revs, the environment is intensely competitive and lending was flat for the quarter, while WFC warned its Q1 results said the environment is intensely competitive and lending was flat for the quarter. Coming into today, major indexes have trended to the upside recently, rising in six of the past eight sessions. As of Thursday, the Dow and S&P 500 were each headed for weekly gains of 2.3%, and the NASDAQ, for a rise of around 3.3%. The move higher has come despite a confluence of macro market factors that have kept investors on edge: concerns of U.S. and possibly coordinated UN attack on Syria after weekend nerve agent attack on civilians, trade dispute with China, sanctions against Russia, timing and aggressiveness of future FOMC rate hikes (Minutes from prior meeting indicated attempt to stunt growth for economy to prevent overheating) and the most recent news items including reversals on TPP, and hopes of a possible NAFTA deal. Lot of items for markets to digest…and that all comes ahead of earnings the next few weeks!

Treasuries, Currencies and Commodities

·      In currency markets, the dollar is mixed vs. various rival currencies, but the overall dollar index (DXY) is flat on the day around 89.75. Bitcoin on track for best week in over four-months. Dollar rises against the yen, while the euro fails to rally after sliding yesterday

·      Gold rebounds after yesterday’s profit taking related sell off, falling from 10-week highs reached Wednesday; gold has been volatile, led lower over last few weeks on rising interest rate hike expectations…but recently getting a lift as the dollar declined and seen as defensive play following the escalating global tensions with Russia/Syria and China

·      Energy futures reverse lower with broader stock markets after initially adding to recent gains, on track to close the week at best levels in over 3-years, getting a lift despite bearish inventory data this week (lower dollar and global tensions lifting prices). Weekly Baker Hughes rig data later today at 1:00 PM EST

·      Treasury markets sliding again as yields moving higher (though just recently reversed), with the 10-year yield approaching highest levels in over 10-years, nearing 2.36%; the 10-year yield little changed, holding around 2.83% after rallying over 5 bps yesterday; bonds have pulled back this week amid easing tensions overseas with Russia/Syria and China related to tariffs. The perceived “hawkish” statement from the Fed Minutes on Wednesday, leading to expectations of more aggressive rate hikes by the Fed.

Economic Data

·      Preliminary April Michigan Sentiment fell to 97.8 from 101.4 and came in below the 100.4 estimate; the current economic conditions index fell to 115.0 vs. 121.2 last month, while the expectations index fell to 86.8 vs. 88.8 last month; expected change in median prices during the next year fell to 2.7% vs. 2.8% last month

·      U.S. Job Openings (JOLTs) fell to 6.052M in February from 6.228M last month, though was above the est. 6.024M; said February pace of hiring 3.7% vs 3.8% prior month; layoffs and discharges at 1.1% in 2018 vs 1.2% in January

Sector Movers Today

·      Banks; opened higher after mostly better earnings results, but have since turned negative, taking down the overall market (note banks have rallied in recent days on rising rate expectations from the Fed and general market strength – so could be a little profit taking): 1) JPM mixed results on EPS beat though revenues lag on weak investment banking/posted a return on tangible equity of 19% in the quarter, topping the 18% medium-term target it set just a few weeks ago; 2) Citigroup (C) posted top and bottom line quarterly beat saying Q1 results demonstrate strength and balance across franchise; 3) WFC calls its 1Q “prelim results,” subject to change due to talks with CFPB, OCC to resolve matters regarding its compliance risk management program and past practices involving automobile collateral protection insurance policies and mortgage interest-rate lock extensions; 4) PNC Q1 EPS was in-line with NIM of 2.91% slightly below views and said total revenue declined 3% Y/Y to $4.1B, reflecting 9% decrease in non-interest income to $1.8B and net interest income increased 1% to $2.4B; said FY18 guidance was unchanged

·      Oil drillers; Credit Suisse upgraded ESV to outperform and downgraded DO to underperform and update estimates for group saying utilization for both jackups and floaters are still in the ~60% range and while that should move higher in 2018 pricing is still not yet even in the conversation; firm also said view management commentary around activity, cost/capex guidance, and M&A will be the key drivers of stock performance in the upcoming Q1 earnings season/top pick RIG

·      Hardware & Comm Equipment; FFIV upgraded to outperform at William Blair after channel checks pointed to a positive inflection in the company’s business trends; ANET downgraded to neutral at Cleveland Research; INFY active on Q4 beat with net profit decline and acquisition announcement; SANM was upgraded to buy at Citigroup

·      Chemicals; in lithium space, ALB was upgraded to buy at Citigroup with $106 tgt saying they do not see a collapse in Li carbonate/hydroxide contract prices as predicted by the bears; shares of FMC also leveraged to lithium market

·      Refiners; Morgan Stanley upgraded HFC to Equal-weight on higher earnings outlook and moderated valuation; for the sector, says expect soft cracks and heavy TARs, particularly in PADD 5, to weigh on results. A constructive summer driving season is formulating, while attractive Midcon differentials offer a sweetener to margins

Stock GAINERS

·      ALB +3%; upgraded to buy with $106 tgt at Citigroup saying they do not see a collapse in Li carbonate/hydroxide contract prices as predicted by the bears

·      AVGO +2%; announced a new $12B share repurchase authorization

·      FFIV +4%; upgraded to outperform at William Blair after channel checks pointed to a positive inflection in the company’s business trends

·      GLPG +4%; announces the design of its registrational Phase 3 program for GLPG1690 in ideopathic pulmonary fibrosis

·      NFLX +1%; upgraded to buy at Deutsche Bank and raise tgt to $350 (4th analyst price tgt hike this week ahead of earnings Monday)

·      PLSE +17%; after announcing clinical efficacy results of its first multi-center study of Nano-Pulse Stimulation technology for the treatment of seborrheic keratosis lesions

·      QCOM +1%; following a CNBC report that former chairman and CEO Paul Jacobs is leading a fund-raising effort to buy take it private https://on.mktw.net/2JHWPsW

·      TSLA +1%; after CEO Elon Musk tweeted earlier today that the electric vehicle maker will be profitable & cash flow positive in 3Q & 4Q

 

Stock LAGGARDS

·      ANET -5%; downgraded to neutral at Cleveland Research

·      DBX -6%; initiated reduce and $21 target at Nomura citing consistently low penetration rates

·      GKOS -10%; downgraded to hold at Stifel after survey leads to believe Glaukos’ share losses will continue into 2019

·      INFY -5%; on Q4 beat with net profit decline and acquisition announcement

·      LEDS -27%; as posts lower revenues

·      MUSA -8%; Wells Fargo lowered Q1 EPS estimates for MUSA & CASY and see a negative risk/reward for MUSA citing a risk it misses expectations (Jefferies downgrade MUSA)

·      STMP -4%; as the Trump administration has issued an executive order to look into the U.S. Post Office Service financials

·      WFC –2%; warned Q1 results may change as a settlement with regulators looms, loans dropped and mortgage-banking results trailed expectations.

·      ZG -8%; announced plans to participate in home buying & selling directly on its marketplace using its own capital; also pre-announced 1Q revenue & EBITDA, 2% and 1% above consensus respectively but brought down its FY18 EBITDA guidance by 11%

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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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