Thursday, May 3, 2018
Equities under broad based selling pressure, with major averages trading back below key technical (and psychological) levels as the market reacts to the recent strength in the dollar and commentary out of the FOMC yesterday at its policy meeting. The Fed kept rates unchanged (as expected), but noted the uptick in inflation. The recent 2-week surge in the dollar has also drawn attention as well as the recent spike up in rates (10-year yield up 50 bps for 2018). A round of disappointing earnings/guidance from key companies over the last few days also overshadowing the good. CAT dragged down industrials recently hinting that earnings may have peaked; Pharma and services space lower on recent PFE miss, while CAH, ESRX, CERN soft guidance drops those names overnight. Semi space with disappointing results from NXPI, CRUS and QRVO hurt tech overnight, while insurance names dragged down by AIG heft EPS miss. There was some good recently with names like AAPL, AMZN, INTC and MSFT knocking the cover off the ball, but lower margins in the Staples space, a delay of tariffs to trading partners take wind out of the sails for steel names (which also had soft guidance X and AKS) and mixed earnings news in Transport space has investors locking in profits. With today’s decline, the Dow trades to a 6-week low and is on track (along with the S&P 500) to close below its 200-day moving average support.
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar bounces off earlier lows, as the dollar index keeps chugging higher; the dollar is down slightly vs. the euro and yen (after recent gains), but the pound falls again amid woes in the UK (current lows of day at 1.3552)
· Precious metals rebound from multi-month lows, trading up over $10 topping the $1,315 an ounce level as the dollar declines for the first day this week after the message from the FOMC yesterday that could have been taken either dovish or hawkish
· Energy futures slide along with US equities, though prices have been recently buoyed by potential supply risks, though upside has been capped by rising U.S. inventories while President Donald Trump neared a decision on whether to reimpose sanctions on Iran. Trump’s deadline to decide on Iran is just over a week away, and could hit the OPEC nation’s crude exports
· Treasury market’s rally along with defensive and safe haven assets as investors continue to pile out of stocks; 10-year yield down 3 bps to below 2.93% and down 10 bps from last week high
· ISM-Non Manufacturing index for April falls to 56.8 from 58.8 in prior month and below est. of 58; business activity fell to 59.1 vs 60.6 prior month. Other breakdowns: new orders rose to 60.0 vs 59.5 MoM, employment fell to 53.6 vs 56.6 and prices paid rose to 61.8 vs 61.5
· Weekly Jobless Claims rose 2K to 211K, but was well below the 225K estimate while prior week claims unrevised at 209K; continuing claims fell 77K to 1.756M in the week ending April 21; the 4-week moving average decreased by 7,750 to 221,500 – lowest level since March 1973.
· Nonfarm productivity for Q1-P rose 0.7%, slightly below the 0.9% estimate while output (goods and services produced) increased 2.8%; hours worked rose 2.1%. Unit labor costs climbed by 2.7%, below the 3% estimate. The overall trend in labor costs is more muted, however. Unit-labor costs have risen a paltry 1.1% in the past four quarters.
· U.S. trade deficit fell (-15%) in March to (-$49.0B) vs. est. (-$50B) to the lowest level in six months, after March was (-$57.7B); Exports advanced 2% to $208.5 billion and set a new record, while U.S. imports dropped 1.8% to $257.5 billion
· Markit said April Composite PMI 54.9 vs. Flash Reading 54.8 and rises from 54.2 in March and a year ago 53.2; new orders rise to 58.5 vs 56.9 in March
· Factory Goods Orders for March rise 1.6%, topping the 1.4% estimate while orders for February revised up to 1.6%; orders up seven of last eight months; new orders ex-trans. for March rise 0.3% and new orders ex-defense for March rise 1.6% after rising 1.3% in Feb.
· The 30-year fixed mortgage rate for week ended today fell to 4.55% from 4.58%, Freddie Mac said; the 15-year rate avg 4.03%, up from 4.02% a week earlier.
Sector Movers Today
· Semiconductors; CRUS missed Q4 revs and guided Q1 revs $210M-$250M below est. $305.95M due to lower than anticipated smartphone unit volumes; QRVO Q4 top/bottom line beat but Q1 guidance fell short of estimates which reflects near-term impacts of product mix and costs associated with lower utilization at their SAW filter fabs; NXPI Q1 revs missed while gross margins also below consensus and no forward guidance was provided; NVDA upgraded to overweight at Barclays and tgt to $280 as see a strong gaming/Volta cycle ahead, which should help mitigate any near-term crypto risks, while our work suggest the AI franchise is more durable in the Data Center with some Edge opportunities; SWKS reports tonight after the close
· Heavy duty truckers; group tries to recover after yesterday sell off in CMI and PCAR on analyst downgrades (CMI 52-week lows); overnight, preliminary Class 8 truck orders for April were 34,800 units, up 45% y/y, according to data from ACT Research, which compared to the 36K-39K estimate from Wells Fargo (CMI, PCAR, NAV, ASLN leveraged to the data)
· REITs: CONE delivered robust leasing volume in 1Q18, with $40M of bookings marking the highest level of production since 2Q16.Q1 FFO also beat while affirmed year; ESS occupancy gains contributed to better than expected 1Q18 results on both top-line growth and core FFO; LSI reported a 1Q beat, and management raised the FFO guidance midpoint 0.3%, as growth stabilized; MAA FFO was in line with consensus on a “clean” basis
· Casino, Lodging & Leisure; in gaming, MLCO mixed Q1 as earnings beat but revenue of $1.31B misses estimates; SGMS results came in mixed as EPS weighs on shares; CZR Q1 results beat with lower marketing cost and reaffirmed RevPAR strength in Vegas; in leisure, MBUU downgraded at Wells Fargo, but only on valuation. Lodging space busy after earnings: HST reported better-than-expected 1Q EBITDA of $370M vs. est. $353M, driven by RevPAR growth of 1.7%; Hyatt (H) rises n Q1 EPS beat though revs missed slightly; HGV Q1 EPS/revs/Ebitda miss views and guides year below estimates; XHR and VAC also movers on earnings in lodging space
· Consumer Staples; KHC quarterly results and commentary around the 2H’18 provided relief from the string of earnings disappointments in the consumer staples sector; in grocers, SFM falls after 1Q comp sales missed estimates and the company cut its full year sales forecast; EL was upgraded to buy at Deutsche but downgraded to hold at Jefferies after earnings; K shares rise after earnings beat expectations, outlook raised
· Transports; index lower falling over 1.5% led by CAR after earnings results down 9%…also 2% declines for DAL, NSC and CSX; CAR headline sales, Ebitda and EPS were all well ahead of expectations, but didn’t raise full-year 2018 guidance
· DATA +8%; reported strong Q1 top-line results with license revs topping views
· KKR +6%; as beats earnings expectations and announces plans to convert to corporation
· MRO +6%; posted 6% oil beat and full-year guidance raise, including upside 2Q18 oil guide
· NRG +5%; as Q1 EPS tops the highest estimate
· RSG +3%; beat 1Q18 and reaffirmed its guidance
· VMC +4%; as Q1 EPS handily top consensus by 21c on better revenue, only reaffirms year
· AIG -7%; missed Q1 EPS by 23c, hurt by P&C underwriting loss
· AKAO -27%; after split vote from FDA panel on antibiotic plazomicin
· CAH -18%; CEO said FY19 will be “more challenging” than anticipated shortly after the company cut its 2018 outlook
· HOLX -10%; after cutting FY18 adjusted revenue view to $3.18B-$3.21B from $3.2B-$3.28B
· NXPI -11%; Q1 revs missed and gross margins below consensus/no forward guidance was provided
· SFM -13%; after 1Q comp sales missed estimates and the company cut its full year sales forecast
· SPOT -9%; reported results at the mid-point of guidance on revenue and user metrics with better than forecast, but guidance for Q2 was slightly below consensus at the mid-point
· TSLA -7%; stock falling more of a results of the “odd” conference call by CEO Musk who dismissed analyst questions (according to analysts) rather than its earnings results
· Inspire Medical Systems (INSP) 6.75M share IPO priced at $16.00
· Unity Biotechnology (UBX) 5M share IPO priced at $17.00
· uniQure (QURE) 4.5M share Secondary priced at $28.50
· Gardner Denver (GDI) 22.1M share Secondary priced at $31.00
· Karyopharm (KPTI) 9.152M share Secondary priced at $14.75
· Medpace (MEDP) 3M share Spot Secondary priced at $35.75