Mid Day Outlook: April 17, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Tuesday, April 17, 18

U.S. stocks advance, adding to yesterday’s gains amid strength in Dow component UNH after better quarterly results, while NFLX earnings and subscriber data helped lift the tech company shares. Financials failing to rally despite better earnings results from GS today (banks thus far have come in mostly better, but group has failed to move higher). The CBOE Volatility index (VIX) is down for a 6th day, as global tensions have taken a back seat (for now) to earnings, with it all quiet the last few days related to the U.S. and China trade dispute and quiet regarding Russia after the U.S. coordinated attack with the UK and France this weekend against Syria following its chemical attack on its own civilians. Better-than-expected data on housing and industrial production as well as growth numbers from China are also providing a positive back-drop for earnings this morning. Note there are a total of four Fed speakers today which could influence trading. Commodity prices are lower with the dollar bounce.

In macro news, China’s central bank said it would free up more than $200 billion for banks to lend and repay short-term loans. The People’s Bank of China said the amount of reserves commercial banks are required to hold would be reduced by 1%, which takes effect on April 25, and will unleash about 1.3 trillion yuan in funds. Also overnight, China reported forecast-beating first-quarter economic growth of 6.8%. The IMF lifted its U.S. growth estimate for 2018 to 2.9% and its 2019 estimate to 2.7%, both increases of two-tenths of a percentage point. It kept unchanged its world economic output estimate from January at 3.9% for both this year and next year.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) bounces after falling yesterday, rising after industrial production, capacity utilization data earlier this morning. The dollar also helped by a softer round of economic data out of Europe as U.K., wages grew 2.8% in February, slightly above inflation, but missing forecasts of 3%, while German economic sentiment dropped further in April, as the ZEW think tank said its measure of economic expectations fell to minus 8.2 points from 5.1 points in March

Economic Data

· Housing Starts for March rose 1.9% to 1,319K, above the estimate of 1.267M, while the prior month was upwardly revised to 1.295M from 1.236M; starts rose 1.9% in March after falling 3.3% the prior month; single family starts fell to 867K; multifamily starts rose to 452K in March

· Building permits for March rose to 1,354M, topping the 1.321M estimate and came in above the upwardly revised figure of 1.321M in Feb (from 1.298M); Permits rose 2.5% in March after falling 4.1% the prior month; completions fell to 1,217k in March, from 1,282k the prior month

· Industrial production for March rose 0.5% MoM, above the 0.3% estimate, after rising 1% in February (was revised up to 1% from 0.9% in Feb). Capacity utilization rose to 78% (vs. est. 77.9%) from 77.7% in Feb., which was unrevised from initial release

Sector Movers Today

· Natural gas sector; Citigroup downgraded shares of AR, COG, RRC & SWN to neutral from b and cut CHK to sell after they lowered the half-cycle PV10 breakeven natural gas price for production growth from the predominantly natural gas plays the E&P coverage group is currently developing to $1.94/MMBtu. Firm lowering 2018 composite spot natural gas price forecast to $2.75/MMBtu from $3.00/MMBtu, and for 2019 to $2.60/MMBtu from $3.35/MMBtu

· Optical sector; sector trying to recover after falling yesterday (ACIA, AAOI, FN, NPTN, LITE, OCLR) on reports the U.S. Commerce Department is banning American firms from selling components to ZTE for seven years due to ZTE having violated terms in a sanctions violation case; ACIA downgraded by at least two analysts as they receive 30% of revs from ZTE; MTSI said Q2 sales from ZTE represented about $1.6M and were immaterial quarter revenue as a whole; NPTNsaid to write off $1.5M ZTE products (had expected 5% of annualized revs from these)

· Payment services/Services; PAYX downgraded to underperform at Bank America and cut tgt to $60 from $66 saying it’s tough to see how shares could move higher in the near-term given the size of the reinvestment plans announced on the firm’s recent earnings call; Bank America also added ADP to its US 1 list citing the firm’s underappreciated margin expansion story


· CE +3%; Q1 EPS topped the highest estimates driven by upstream Acetyl Chain and raises FY18 EPS view to up 20%-25% from up 12%-16%

· GRUB +4%; overweight and $120 tgt at Stephens calling it clearest leader in online ordering space

· GWPH +11%; after FDA briefing documents conclude profile in GW Pharma’s application on Epidiolex (cannabidiol) as a treatment of seizures associated with Lennox-Gastaut syndrome

· NFLX +7%; reported another strong quarter with 1Q subscriber net adds totaling 7.4M, a 1Q-record that follows 4Q17’s all-time best 8.3M net adds and better guidance/also modestly raised its outlook for operating margin for the year to 10%-11%

· NTRS +2%; total revenue grew 15% to $1.48B, above the $1.44B est. driven by growth in trust, investment and other servicing fees

· PGR +2%; after earnings results

· ROKU +8%; on positive read-through from NFLX results; says ESPN+ through the new ESPN channel is available on its platform; and as Point72 Asset Management took a passive stake

· UNH +3%; boosted 2018 forecast and beat quarterly estimates


· CMA -2%; Q1 EPS just beat but revs disappoint and said Q1 average loans $48.4B, down $512M q/q, but up $521M YoY

· GPRO -5%; Longbow said it sees 60/40 odds GoPro is bought this year, which is alluring, but not enough to upgrade the stock

· GS -1%; posted a 27% rise in Q1 net income after a big rebound from its core trading business helped by market volatility

· JNJ -1%; despite Q1 EPS beat and raised guidance

· RRC -2%; downgraded to neutral at Citigroup in natural gas call

· SEAC -10%; as Q4 results were in-line to slightly better, but rev guidance of $13M-$15M vs. est. $18.57M and year revs $80M-$90M vs. est. $82.6M missed views

· TSLA -1%; has halted Model 3 production for four to five days


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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