Mid Day Outlook: April 19, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Thursday, April 19, 18

U.S. stocks start the day off slowly, led lower by shares of Consumer Staples, while Financials and Energy among the best performers. U.S. equities fell for the first time this week amid a couple of pockets of weakness dragging markets lower: 1) Semiconductors decline led by TSM after the company missed numbers and lowered its outlook (dragging AAPL suppliers lower); 2) Consumer Staples a big drag after PM sales missed views, PG guidance disappoints and CLX cut to underweight by one analyst; 3) furnishing space remains weak as PIR lower comps after ETH guide yesterday and BBBY lower forecast last week. Higher yields also may be weighing on sentiment as the yield on the 10-year Treasury bond rose above 2.9%, and the 2-year holds above 2.42%. However, after falling more than -100 points earlier, the Dow has pared losses, led by Dow component AXP after better results last night. Commodities active after earnings results from AA, STLD, and NUE. Banks posting a nice rebound as the sector tries to recover from its week-long selling pressure.

Treasuries, Currencies and Commodities

· In currency markets, the dollar is doing very little, unchanged overall (dollar index flat), the lack of action in currency market having muted effect on gold prices, down slightly but holding recent gains as the geopolitical landscape (Syria/Russia/China) remains in investor minds

· Energy futures rallied above $69 per barrel (fresh 3 ½ year highs) after a surprise drop in U.S. inventories yesterday added to signs the market is in balance before a key OPEC meeting. Focus is now shifting to whether OPEC and its allies will signal an extension of supply cuts at their meeting on Friday in Saudi Arabia.

· Treasury market’s slide as the yield on the benchmark 10-year yield top 2.9%, its highest level in a month while the shorter-term 2-yr yield holds gains above 2.42% on rising rate hike expectations; better economic data continues to raise possibility of 4-rate hikes from the Fed this year

Economic Data

· Weekly jobless claims fell 1K to 232K vs. est. 230K while the prior week was unrevised at 233K; the 4-week moving average rose 1,250 to 231,250; continuing claims fell 15K to 1.863M in the week ending April 7

· Philly Fed Survey showed Fed’s manufacturing index edged up 1 point to 23.2 in April, topping the 21.0 estimate while the index for future activity dropped to 40.7 in April from 47.9 in March. New orders slipped to 18.4 in April from 35.7 in the prior month. Shipments also dropped to 23.9 from 32.4 in the prior month. Employment index edged up 2 points to 27.1 best level in 6-months

· The 30-year fixed-rate mortgage averaged 4.47%, according to Freddie Mac’s weekly survey. That was five basis points higher than in the previous week, and the highest for the popular mortgage product since January 2014. The 15-year fixed-rate mortgage averaged 3.94%, up from 3.87%

Sector Movers Today

· Semiconductors; group weak amid several data points (AAPL suppliers SWKS, CRUS, AVGO among top decliners); TSM weak as reduced its full-year revenue outlook to the low end of its earlier guidance due to softer demand for smartphones and cryptocurrency-related chips/now sees FY 2018 revenue growing 10% compared with an earlier forecast of 10%-15%; QCOM has reapplied for approval with China’s Ministry of Commerce in pursuit of NXPI and pushed a new deadline of July 25 on the calendar before it will pay the $2B termination fee

· Rentals & Distributors; GWW Q1 results and full-year outlook topped market expectations, helped by increased volume in its U.S. business with both large and medium customers and a strong demand environment (rebounds after last week misses by comps – shares of MSM, WCC, FAST among those active on report); URI shares fell as Q1 operating EPS missed and 1Q gross margin 37.26% missed the est. 39.3%

· Metals & Mining; in aluminum sector, AA posted a beat and raise quarter with management now saying they see a shortfall in the key raw material used to make aluminum (CENX, CSTM, KALU move in sympathy); in steels, STLD EPS beat consensus and its mid-March guided range 88c-92c on the back of tighter U.S. steel markets, and management noted particularly strong sheet conditions; NUE mixed Q1 as EPS missed but revs topped views and said expects Q2 earnings to increase significantly

· Consumer Staples weak; Dow component PG core EPS and sales topped consensus and boosts forecast for year core profit, but said internal sales in an annual basis are now expected to come in at the low end of its 2%-3% guidance; CLX was downgraded to underweight at Morgan Stanley; in tobacco, PM shares fall after Q1 revenue fell short of estimates (shares of CHD, COTY, EL, KMB, CL among those active on the day); PG also agreed to acquire Merck KGaA’s consumer health unit for 3.4 billion euros ($4.2 billion) https://reut.rs/2qHiWaO

· Housing & Building Products; home furnishing sector pressured after PIR posted a comp sales miss and dividend halt, just one day after ETH issued weak preliminary numbers (and recall BBBY shares dropped sharply last week on lower forecast); TTS active after quarterly results; in homebuilders, NVR reported Q1 EPS above consensus views; SNA rises after better results


· AA +4%; posted a beat and raise quarter

· AXP +6%; posted a quarterly beat and forecast boost to the high end of the range/sees FY18 EPS at high end of $6.90-$7.30 view vs. est. $7.12

· BK +4%; amid rebound in financials and after earnings

· GWW +5%; Q1 results and full-year outlook topped market expectations

· SHPG +7%; Reuters reported Japan’s Takeda Pharma is in negotiations with them after making a third takeover bid worth around $61B that was rejected by Shire https://reut.rs/2HDgnRb

· SIEN +6%; announced it received approval from the FDA for its final PMA supplement, which will allow the company to commercialize its breast implant products being manufactured by Vesta

· SNA +8%; rises after better quarterly results


· AAPL -2%; after TSM lower forecast and as Mizuho said 3Q revenue guidance could miss at the midpoint on limited upside to 2018 shipping estimates and full valuation

· ACET -59%; after saying it was negotiating credit agreement waivers with its lenders, cutting its dividend, taking a large impairment charge and initiating an evaluation of strategic alternatives

· AGN -6%; as confirms in early stages of considering possible offer for SHPG, though has not made an offer (see above on SHPG story)

· INCY -1%; and LLY slip as an FDA briefing document raised issues with their rheumatoid arthritis drug baricitinib/drug will go up before a FDA arthritis advisory committee meeting on Monday

· PIR -20%; posted a comp sales miss and dividend halt

· PM -15%; as Q1 revenue fell short of estimates and total shipment volumes were worse than analysts expected

· SCG -3%;as Dominion (D) $7.9 billion takeover of the company dealt a blow after a bill passed by South Carolina legislators late Wednesday to cut the money Scana can collect from customers for a half-finished nuclear power project the company scrapped last year

· SNBR -12%; as reported 1Q EPS below expectations due to topline growth that was below expectations and pressure on margins from investments

· TSM -5%; after its narrow Q1 earnings miss also reduced its full-year revenue outlook to the low end of its earlier guidance due to softer demand for smartphones and cryptocurrency-related chips/now sees FY 2018 revenue growing 10% compared with an earlier forecast of 10%-15%


· Aeglea BioTherapeutics (AGLE) 4.5M share Secondary priced at $8.00

· Apellis (APLS) 5.5M share Secondary priced at $25.50

· Aspen Group (ASPU) 2.8M share Spot Secondary priced at $7.15

· Carolina Trust BancShares (CART) 2.31M share Secondary priced at $8.00

· GrafTech (EAF) 35M share IPO priced at $15.00

· Helios and Matheson (HMNY) 10.5M share Spot Secondary priced at $2.75

· MorphoSys (MOR) 8.3M share IPO priced at $25.04

· South Jersey Industries (SJI) 11.017M share Secondary priced at $29.50

· Surface Oncology (SURF) 7.2M share IPO priced at $15.00

· Torchlight Energy Resources (TRCH) 5M share Spot Secondary priced at $1.15


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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