Mid-Morning Look: May 9, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, May 9, 2018

U.S. equities rose in early trading action as markets continued to digest Tuesday’s announcement from President Donald Trump that the U.S. will exit the Iran nuclear deal and reimpose sanctions. Energy companies led gains, as WTI crude oil climbed toward $71 a barrel, leading several energy stocks higher (among the top performers in the S&P 500). Dow Industrials try to make it a 5th straight gain, which would mark its best winning streak since mid-February. Small caps extend gains as the Russell 2000 index approaching the 1,600 level, outperforming large caps as seen as more resilient to worries about global trade and a strengthening dollar. The dollar down slightly, falling from 5-month highs, while yields on the 10-year trade back above the 3% level. Another busy night/morning of earnings results (highlights down below), but attention likely turns to trade given the FOMC, Iran and bulk of earnings season now behind us for the short-term. Inflation data was tame this morning (PPI) ahead of the CPI tomorrow. In global news, North Korea freed three U.S. detainees ahead of summit.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index slips, taking a breather after surging to best levels since December, as the dollar index (DXY) drops back under the 93 level after reaching recent highs of 93.41; the euro bounces back while the Canadian dollar rallies behind the push in oil
· Precious metals have rebounded from earlier losses, with gold prices now up a few bucks, topping $1,350 an ounce as benefitting from a rare pullback in the U.S. dollar
· Energy futures leading commodity prices higher, with more than 2.5% gains for WTI crude, as trades back around the $71 per barrel level, best levels since November 2014, while Brent crude tops the $77 per barrel level. Bullish inventory data overnight (from API) and news that the U.S. pulled from the Iran nuclear accord, reinstating sanctions against the OPEC member, leads to fears of reduced supply
· Treasury markets slip in the early going, as the benchmark 10-year yield topped the 3% earlier as bonds slide and investors rotate back into U.S. stocks this week. Inflation data was slightly weaker (PPI for April) on both the headline and core prices, ahead of the important CPI data tomorrow

Economic Data

· Producer price index (PPI) for April rises a less-than-expected 0.1% (est. +0.2%), down from the 0.3% increase last month while core prices (ex: food & energy) also rose 0.1% (also missing the +0.2% estimate). The 12-month rate of wholesale inflation slipped to 2.6% from 3%. The March reading was the highest the government has recorded since it reformulated the PPI in 2013. The yearly rate of core inflation slipped to 2.5% from 2.9%.
· Wholesale Inventories rose 0.3% in March, below the 0.5% estimate as March wholesale inventories increased to $627.4B vs $625.3B in prior month; Feb. inventories revised to 0.9% from 1.0%, while wholesale inventories excluding oil rose 0.4% in March. Wholesale sales rose 0.3% in March after rising 1.1% the prior month

Sector Movers Today

· Semiconductors; Nomura with a broad call, saying multiples continued to compress in April despite positive revisions (Apple suppliers the exception). That being said, this weakness looks temporary and are encouraged by the performance in May and look for companies reporting off quarter (ADI, AMAT, NVDA) or hosting analyst meetings (QRVO, MU, XLNX) to reassure investors that 2H-18 won’t fall off a cliff. Firm upgraded XLNX and downgraded AVGO while saying INTC will grind higher as data points later this month reaffirm strong enterprise demand
· Restaurants; PZZA Q1 earnings and revs missed views with revs down ~5% mainly due to lower comparable sales in North America restaurants/reaffirms FY18 forecast; WEN Q1 comp sales missed estimates after in-line earnings and revs; CMG said it has seen a 667% increase in weekly delivery orders since initiating the partnership with DoorDash; RRGB upgraded to buy at Stifel; other restaurants moving on earnings: BOJA, CHUY, PBPB
· Large Cap Pharma; HZNP 1Q sales of primary care medicines dropped 21% YoY citing greater than expected seasonality and a $14M accrual in wholesale, retail channel following price action; IRWD was downgraded to underweight at Morgan Stanley saying shares have run ahead of fundamentals; LPCN plunges as FDA Response on Tlando notes four deficiencies
· Aerospace & Defense; ARNC upgraded to buy and $23 tgt at Longbow as see the sub-$18 price as a good entry point for a company highly-levered to aerospace growth (representing 40-45% of company sales) that may also participate in future M&A activity; Citigroup on defense space saying the stocks can still work after the group has sold off in the past few weeks as firm upgraded HII to buy after a reset in earnings expectations, while RTN remains its favorite; AAXN shares surge after analysts note convincing Q1 beat (Ladenburg raises tgt to $54 from $48)
· Media movers; Dow component DIS EPS of $1.84 beat street $1.70 by 8%, revs of $14.55B were 3% ahead of views as media had a good quarter, Parks had a great quarter and Studio had a stellar quarter (Avengers); FOXA agreed to buy seven television stations from SBGI for about $910 million https://reut.rs/2ItoU9E ; VOD has agreed to pay $21.8 billion to buy LBYTA’s assets in Germany and eastern Europe https://reut.rs/2rubGQ3 ; in research, BATRK was upgraded at Morgan Stanley noting down about 10% in the past six months against the backdrop of appreciating sports team values

Stock GAINERS
· AAXN +22%; analysts note convincing Q1 beat (Ladenburg raises tgt to $54 from $48)
· ARWR +17%; analysts positive following the 2Q18 earnings report and ARWR’s transition to clinical-stage development with subcutaneous delivery (upgraded at Cantor)
· EA +2%; reported a solid 4Q beat across all key metrics and saw full year EPS exceed initial guidance ($4.38 versus $4.10) for a fifth consecutive year
· GRPN +11%; Q1 beats on EPS and revs with $300M share buyback and FY Ebitda view above consensus
· OXY +5%; EBITDA/EPS beat expectations and Permian Resources production exceeded the upper end of guidance
· RRC +5%; broad strength in energy complex as oil moves higher
· SHLD +17%; as Sears Auto Centers said it is working with Amazon.com to provide full-service tire installation and balancing for customers who purchase any brand of tires on Amazon.com
· TRIP +22%; after 1Q earnings and revenue beat the highest estimates
· WWW +6%; posted Q1 EPS beat by 13c on higher revs while lifts 2018 guidance

Stock LAGGARDS
· AAOI -8%; soft 1Q and guided 2Q essentially in-line with consensus
· CSTE -23%; after cutting its 2018 revenue and adjusted Ebitda views, and as Q1 adjusted EPS and revenue trailed estimates on lower margins
· LXP -3%; downgraded to sell at Stifel saying it has little chance of FFO growth and may cut its dividend
· MNST -7%; reported mixed 1Q18 results, with sales ~1% ahead of consensus while EBIT was ~5% below expectations (was downgraded at JPMorgan)
· PHM -3%; amid broad weakness in the homebuilder space early (LEN, TOL, MTH)
· PZZA -7%; Q1 earnings and revs missed views with revs down ~5% mainly due to lower comparable sales in North America restaurants/reaffirms FY18 forecast
· WMT -5%; agrees to make about a $16 billion investment in Flikpart Group, acquiring an initial 77% majority stake in the Indian e-commerce market leader https://reut.rs/2IuEPEM

Syndicate
· AxoGen (AXGN) 3M share Secondary priced at $41.00
· Evelo Biosciences (EVLO) 5.31M share IPO priced at $16.00
· First Hawaiian (FHB) 15.3M share Spot Secondary priced at $27.75
· Origin Bancorp (OBNK) 3.636M share IPO priced at $34.00
· PPL Corp. (PPL) prices 55M secondary offering at $27 per share

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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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