Mid-Morning Look: May 10, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Thursday, May 10, 18

U.S. equities advance early, with the Dow Industrials trying to make it a 6th straight day of gains, the Nasdaq Composite trading to its best levels since mid- March and the S&P 500 topping the psychological 2,700 level amid lower inflation fears as the monthly CPI report fell short of estimates. Small caps also continued their upward momentum with the S&P SmallCap 600 index trading to a record intraday high. Healthcare stocks rallying from recent weakness ahead of President Donald Trump’s speech on his plans to address drug pricing Friday. Technology shares pacing the gains again ahead of key earnings in the chip sector tonight with NVDA reporting. Interest rate sensitive sectors (Telecom) rebounds as bonds rise, sending yields lower on the tamer CPI inflation report. The dollar also pulling back from recent gains along with oil on profit taking. Retailers fall as LB guided next quarter to low end of earnings range after April comps were flat, while department stores drop on Morgan Stanley downgrade of Macy’s. The pound erased an advance after the Bank of England held interest rates, as the central bank voted 7-2 to keep rates unchanged in what was interpreted as a more dovish hold than expected.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) pulls back below the 93 level after touching its best prices in over 5-months earlier this week. Another softer inflation report (CPI after PPI yesterday), eases concerns the Fed will hold back on its more aggressive rate hike campaign. The dollar slips vs. the euro and yen but rises vs. the British Pound after the Bank of England kept rates unchanged at its policy meeting today

· Commodity prices; gold rebounds a few dollar given the weaker dollar and tamer inflation readings, with gold up about $6; oil prices slight pullback after surging over 3% on bullish inventory data and follow through strength as the US pulled out of Iran nuclear accord, reimposing sanctions – prices pull back from November 2014 highs above $71 per barrel

· Treasury markets bounce as aggressive rate hike expectations from the FOMC ease given the tamer inflation readings the last two days (CPI today below views); the 10-year drops back to 2.96% (after trading above 3% yesterday) and the 2-yr down about 3 bps from yesterday highs above 2.54%

Economic Data

· Consumer price index (CPI) for April rose 0.2% in April, slightly below the 0.3% estimate, but up from last month’s (-0.1%) decline. The more closely followed core measure (strips out food and energy) advanced 0.1%, also missing the consensus estimate of 0.2%. The consumer price index has risen 2.5% in the past 12 months – the highest rate in 14 months…but the yearly increase in the core rate was unchanged at 2.1%

· Weekly jobless claims remained steady at 211K, but was below the estimate of 219K, holding near a 49-year low in early May; the 4-week moving average fell by 5,500 to 216,000 to touch the lowest level since December 1969. The record streak of weekly claims below 300K is now in its 166th week, and the streak of sub 250K readings is up to 25!

Sector Movers Today

· E&Ps sector; lots of research today as Tudor Pickering downgraded ECA to hold on valuation given limited upside to its $14/share NAV…cuts NFX to hold from buy on valuation and EOG cut to hold as sees better value elsewhere in E&P sector/remains positive long-term…LPI cut to hold as eyes execution in 2H 2018, while upped SM to buy. Bank America upgraded WLL to buy on solid momentum and EGN to buy from neutral on positive operational momentum and superior takeaway positioning…also upped OAS to neutral from underperform on higher oil prices; Bakken results to benefit from improved completion techniques, favorable differential outlook (form downgraded Canadian E&P Husky given uncertainty on recent fire at its Superior refinery)

· Software movers; SAIL shares fall despite earnings beat as analysts said valuation concerns overshadows the company’s earnings beat; UPLD beat and raise quarter, particularly strong organic growth which was up 6%; NUAN slides as reported a mostly in-line quarter last night, with soft bookings while forward guidance was lowered; OTEX falls after Q3 EPS missed the lowest Street estimate

· Monthly same-store sales data; most retailers no longer provide monthly data, but COST said April comp sales up 10.9% vs. est. up 8.80% and April U.S. comp sales ex-gas up 7.9% vs. 6.6%; BKE April Comp Sales down (-3.4%) vs. est. down (-5.0%); CATO April Comp Sales down (-6%) vs. est. down (-5.0%) saying April sales hurt by the shift of Easter; LB guided Q1 EPS to the low end of 15c-20c view while posting April comp sales flat (Victoria Secret comps -2%)

· Oilfield services @ Equipment; NBR 35M share Spot Secondary priced at $7.75; FTI shares fall after Q1 earnings missed consensus views; in research, Bank America upgraded HAL to buy given a more bullish view on U.S. activity and continued confidence in stronger 2019E int’l markets, and also raise ests for pressure pumpers and drillers, and reiterate top pick PTEN…BoFa also downgraded BHGE to neutral as positives from upcoming LNG FIDs and its aggressive buyback now look more priced in…in offshore driller space, upgrade RDC to Neutral from Underperform, as we believe its joint venture with Saudi Aramco (ARO Drilling) offers the best visibility into future cash flows of any company in the offshore space

Stock GAINERS

· AAPL +0.5%; on track for 9th straight day of gains, 5th straight record high

· ARMO +66%; LLY to acquire the late-stage immuno-oncology company ARMO for $50 per share, or approximately $1.6 billion, in an all-cash transaction. https://reut.rs/2Kblzcy

· CTL +6%; in-line quarter, with revenue/EBITDA trends stabilizing and management upbeat on its improved overall service offering and synergies

· CVNA +10%; Q1 revs beat with Street noting its gains in gross profit per unit (GPU) amid strong execution and increased demand

· DVAX +10%; upgraded to overweight at JPMorgan saying shares could reach as high as $25-share in a “homerun scenario” for experimental cancer medicine, SD-101

· GDOT +15%; reported another quarter of record revenue ($315M) and EPS (+40% YoY) in 1Q

· RNG +8%; quarter beat and raise in 1Q18 with core sub revenue growth accelerating to 37%

· ROKU +3%; posted a beat-and-raise quarterly results as active accounts grew 47% YoY and its average revenue per user (ARPU) increased 50%

Stock LAGGARDS

· BKNG -5%; reported a mixed quarter highlighted by softer growth (bookings up 12% constant currency), but better EBITDA margins

· EXEL -9%; and ARRY shares slide after partner Roche announced the Phase 3 IMblaze370 trial of atezolizumab combined with cobimetinib did not hit its primary target in cancer study

· FTI -5%; Q1 earnings missed consensus views by 6c on in-line revs

· LB -6%; guided Q1 EPS to the low end of 15c-20c view while posting April comp sales flat (Victoria Secret comps -2%)

· MDCA -36%; after cutting 2018 organic revenue growth outlook to 1%-3% from 4%

· NUAN -18%; reported a mostly in-line quarter last night, with soft bookings while forward guidance was lowered

· PBYI -20%; after posting a wider than expected Q1 EPS loss

· TGI -6%; after the company’s full-year adjusted EPS view and cash flow guidance disappointed

Syndicate

· AXA Equitable (EQH) 137.25M share IPO priced at $20.00

· Integra LifeSciences (IART) 5.25M share Spot Secondary priced at $58.50

· Nabors Industries (NBR) 35M share Spot Secondary priced at $7.75

· PlayAGS (AGS) 4.25M share Secondary priced at $21.50

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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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