Mid Day Outlook: April 30, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Monday, April 30, 2018

U.S. equities are getting a lift to start the week as active deal making over the weekend (at least four major deals this morning) boosts sentiment for stocks early and as markets prepare for another busy week of earnings results. The U.S. dollar extends its gains from last week, while the 10-year Treasury yield holds steady from late last Friday around 2.96% (but off 4-year highs of 3.03% reached the middle of last week). Several deals announced in the telecom (S/TMUS), REITs (DCT/PLD), Refiners (MPC/ANDV) and lodging (ILG/VAC) sector has markets moving, but there was also a busy morning of economic data (Chicago PMI, Personal Spending/Income and Housing). Investors prepare for a potentially catalyst driven week of news with the FOMC policy decision on Wednesday, tariff news this week and jobs data on Friday, in addition to the earnings onslaught. On the final day of the month, the Dow is on track for a monthly gain of 0.9% as of Friday’s close, cutting its year-to-date loss to 1.7%. The S&P is up 1.1% in April, but down 0.1% in 2018, and the NASDAQ has tacked on 0.8% this month, and up 3.3% YTD.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar extends last week’s gains, with the euro near the lows, down shy of -0.5% at 1.2075 (last week lows 1.2056 on Friday), while the dollar posts a 0.3% rise vs. the Japanese yen to 109.40 (back near 3 month highs); the Pound falls further, down as low as 1.3713 before paring losses, touching worst levels in roughly 2-months

· Commodity prices lower, with gold down over -0.5% to around $1,315 an ounce as the dollar pushes higher again on rising inflation and rate hike expectations (ahead of the FOMC policy decision this week); oil prices bounce off earlier lows, erasing earlier losses

· Treasury markets with small gains early, as the benchmark 10-year yield falls under 2.96% from late Friday (and well below the 3.03% recent high); Treasury yields holding recent spike higher (10-year now more than 50 bps higher since the start of the year) ahead of FOMC Wednesday

Economic Data

· Personal Income for March rose 0.3%, slightly below the 0.4% expected rise, while personal spending rose 0.4%, in-line with estimates; real personal spending rose 0.4% vs. est. up 0.5%; core inflation rose 0.2%, matching estimate and rose 1.9% YoY; PCE prices unchanged, matching estimate and rose 2.0% YoY; the savings rate at 3.1% in March vs 3.3% the prior month

· Chicago Purchasing Managers index rises to 57.6 from 57.4 last month and was mostly in-line with the 58.0 estimates, but remains well below the 61.9 reading in February

· Pending Home Sales for March rise 0.4% MoM, missing the 0.7% estimate; sales in the Northeast fell (-5.6%) after Feb. rose 10.3%, while the Midwest up 2.4% (Feb. rose 0.7%), the South up 2.5% (Feb. rose 2.9%) and the West fell (-1.1%) vs. Feb. fell (-0.7%)

Sector Movers Today

· Telecom sector; Sprint (S) and TMUS agreed to combine in a $26.5 billion all-stock merger and believed they could win over skeptical regulators because the merger would create thousands of jobs; all-stock transaction is at a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share, or the equivalent of 9.75 Sprint shares for each T-Mobile US share https://yhoo.it/2jdGiku ; TU upgraded to overweight at Morgan Stanley driven by increased confidence in sustainable wireless growth, while firm downgraded COMM, cautious elevated EPS expectations to drive further upside are difficult on top-line beats alone

· Oilfield services; Wells Fargo comments on space, after EPS reports more positive on WFT and PTEN, upgrade SPN to Outperform, downgrade OIS to Market Perform and see further downside EPS risk to RES – says believe that company commentary, 1Q results and guidance, and recent news flow remain supportive of our OFS investment thesis favoring NAM pressure pumping and completion services and potential upside surprises for subsea/production equipment orders

· Tower stocks (AMT, CCI, SBAC) initially weak following merger as AMT notes that Sprint makes up 4% of property revenue and T-Mobile 3% of property revs – note the group did recover off lows as many analysts express concern deal carries significant regulatory risks

· Aerospace & Defense; MOG/A upgraded to buy at SunTrust citing the combination of improving FCF in FY19 (>120% conversion), lower aircraft R&D spending, and mgmt's surprise divestiture of its struggling wind pitch control unit; ARNC shared fell, among top decliners in the S&P after cutting its yearly forecast citing rising aluminum prices and business inefficiencies

· Software movers; busy earnings week ahead with APTI, SHOP, PAYC, ZEN, ULTI, ANSS, BNFT, PCTY, AKAM, VRNS, CVLT, QLYS, DATA, FTNT, NTCT, QTWO, RP and TDC reporting; Video gamers (ATVI, EA, TTWO) active ahead of quarterly earnings, with MKM saying the success of Fortnite doesn’t mean the sky is falling for the group (TTWO upgraded at Wedbush)


· ANDV +14%; MPC to acquire ANDV in $35.6B deal; Andeavor shareholders can choose between 1.87 MPC shares or $152.27 in cash per share they own https://on.mktw.net/2I5cO6w

· ARLP +6%; after easily exceeding Q1 earnings expectations and raising its full-year revenue guidance above consensus

· DCT +11%; PLD agreed to buy DCT for $8.4B including debt, w/DCT holders getting 1.02 PLD shares, valuing the deal at $67.91 per DCT share https://on.mktw.net/2JGkRns

· FDC +15%; shares jumped following earnings results and raised its year guidance

· FIT +6%; as reports pact with GOOGL; to use Google’s Cloud Healthcare API to integrate the company further into the healthcare system

· ILG +5%; VAC agreed to acquire ILG in deal with implied equity value of about $4.7B as ILG holders to get $14.75 in cash and 0.165 in shares https://on.wsj.com/2HBlhyN

· MCD +4%; the Dow component rises, getting a lift after reporting better than expected quarterly earnings and revenues, helped by its revamped new $1, $2, $3 menu

· STDY +77%; to be acquired by UTHR in a deal valued at $216M, including contingent payments, with holders getting $4.46 per share in cash https://on.mktw.net/2vYQ1Ey

· WPP +6%; on earnings results as 1Q organic net sales decline was smaller than anticipated


· ARNC -12%; after cutting its yearly forecast citing rising aluminum prices and business inefficiencies

· AVGO -1%; narrowed the range for its Q2 adjusted revenue outlook to $5B plus or minus $25M from prior view $5B plus or minus $75M

· CELG -4%; after Morgan Stanley said that it may take the company over a year to refile its U.S. marketing application for multiple sclerosis med Ozanimod

· CTB -13%; reported weaker than expected Q1 sales, due to slow consumer sell-out within the industry that continued from 2017

· FRED -12%; as its CEO resigns amid shift to Pharmacy and Healthcare business

· S -12%; and TMUS agreed to combine in a $26.5 billion all-stock merger https://yhoo.it/2jdGiku


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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