Mid-Morning Look: May 8, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Tuesday, May 8, 2018

U.S. equities open to the downside ahead of President Trump’s decision on the Iran nuclear deal later this afternoon (he said yesterday that it would be announced at 2:00 PM EST), but have pared losses to trade little changed. Trump’s decision of possibly abandoning the Iran deal would trigger a reimposition of economic sanctions on the OPEC producer and could provide support for crude-oil prices by limiting supply (however, oil prices have slid from 4-year closing highs yesterday above $70 per barrel). Rising bond yields lessen interest in higher dividend payer companies early such as utilities and telecoms, while banks got a lift as 10-year Treasury yield climbed to 2.97% and after financial unfriendly NY Attorney General Schneiderman stepped down last night on abuse allegations. Coming into today, both the S&P and the NASDAQ are coming off two positive sessions, while the Dow has gained for three straight. Another heavy round of earnings today and tomorrow, but Iran and trade also remain key catalysts.

Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar extended its winning streak while oil ahead of President Donald Trump’s decision on the Iran nuclear deal. Lingering uncertainty weighed on risk sentiment, as the dollar index (DXY) up more than 0.5% around 93.25, its best levels since late December; the euro falls near lows, dropping -0.6%, and moving under 1.185 (also lowest since late December); greenback up slightly vs. the yen at 109.26; the Pound falls below the 1.35 level, down -0.5%. Bitcoin prices fall a second session (cautious comments from Buffett and Bill Gates yesterday), down 3.4% above $9,100 (overnight highs $9,459)
· Commodity prices: Energy prices slide further ahead of Trump decision on Iran nuclear deal later this afternoon. WTI crude settled at highest levels since November 2014 yesterday around $70.75 per barrel before slipping after futures closed Monday and early today ahead of the decision amid uncertainty. Precious metals dip as gold falls back below $1,310 an ounce as the dollar extends gains, trades best levels since December.
· Treasury market’s slide as yields move back to the upside, with the 10-year yield topping 2.97% this morning and the 2-yr above the 2.5% level. Yields higher after Fed Chairman Powell stuck by the central bank message of gradual tightening

Sector Movers Today
· Specialty Pharma and generics outperform on earnings; VRX shares jump as raised year slightly and as its key gastrointestinal drug (Xifaxan) posted impressive growth at the start of the year, helping to offset declines in other parts of the business; ENDP another gainer after Q1 results top views (revenue of $701M tops $692M est.); MNK Q1 EPS and revs beat ($1.31/$572.6M vs. $1.08/$558.4M); PRGO mixed results as back year outlook
· Aerospace & Defense; Goldman Sachs remains positive on the defense sector, as makes conviction list changes as earnings season information and share price volatility have reset valuation-versus-fundamentals comparisons/adds NOC to conviction list as sees industry’s best program portfolio, flags accretive capital deployment, strong metrics at OA; RTN was upgraded to outperform by Wolfe Research based on 1) valuation, 2) continued favorable outlook on the demand environment for defense and RTN products, and 3) RTN’s diverse and diffuse portfolio
· Optical sector active on earnings; OCLR Q3 EPS beat by 3c on better revs of $127.3M and margins 37.2% but notes temporarily suspends shipments/activities with ZTE due to sanctions; FN revenue topped estimates for Q3 ($332M vs. est. $319M) despite taking a hit from the ZTE sales ban (group bounced yesterday as well – AAOI, FNSR, LITE)
· Transports; car rental space weak after HTZ Q1 YoY improvement was driven by strong volume growth in the U.S. and an expected reduction in fleet costs, but still came up short of consensus; LUV reported its April preliminary traffic statistics. The company flew 11.B revenue passenger miles, or RPMs, in April, a 0.3% decrease from the 11.2B RPMs flown in April 2017. Available seat miles, or ASMs, increased 1.5% to 13.6B in April; in truckers, UBS lowered tgts on a few names (KNX, WERN) says entering tug-of-war between EPS & PE’s
· Chemicals; NTR posts slightly weaker Q1 results on delayed Spring activity in North America due to colder temperatures; MOS posted a Q1 miss, but guidance raised on transformational initiatives at Mosaic Fertilizantes, which is expected to generate substantial earnings growth in 2H18; RKDA said results of a field trial of its “input traits” have significantly boosted the yields of rice crops

Stock GAINERS
· CAT +1%; after clarifying recent “high water mark” comment saying it is not meant to suggest markets peaking
· DF +12%; after Q1 profit topped expectations as its turnaround efforts gain traction
· EXPD +9%; after earnings results
· FOXA +2%; CMCSA is speaking to investment banks about obtaining bridge financing for an all-cash bid to displace DIS on its $52B deal to acquire most of FOXA assets    https://reut.rs/2KHTx9v
· PI +31%; after Q1 revenue tops estimates; forecasts Q2 revenue largely above estimates
· RKDA +23%; said results of a field trial of its “input traits” have significantly boosted the yields of rice crops
· SEAS +10%; after earnings beat on smaller loss as attendance rebounded
· TCMD +10%; Q1 sales of $26.8M (+35.3%) came in $3.0M above consensus, driven by ongoing Flexitouch adoption
· VECO +9%; after 1Q results beat analyst estimates and 2Q guidance met consensus
· VRX +13%; leads specialty pharma higher after earnings results

Stock LAGGARDS
· AKCA -12%; as FDA publishes staff report on its Volanesorsen ahead of May 10 meeting
· HAIN -6%; posted a significant EPS and revs miss for Q1 (37c/$73.4M vs. est. 47c/$92.8M)
· HTZ -12%; Q1 YoY improvement was driven by strong volume growth in the U.S. and an expected reduction in fleet costs, but still came up short of consensus (larger loss)
· MOS -3%; posted a Q1 miss, but guidance raised on transformational initiatives at Mosaic Fertilizantes
· NOW -1%; slips after disappointing margin outlook commentary at analyst day as prior margin outlook of 28%-30% is being revised down for investment purposes

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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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