Mid-Morning Look: May 17, 2018

Terrie AmengualDaily Market Report


Mid-Morning Look
Thursday, May 17, 2018

U.S equities quickly rebound off lows, erasing losses despite disappointing guidance from Dow component Cisco Systems weighing on tech as markets remain resilient in the face of rising borrowing costs (10-year touched 3.11% today) and trade spat concerns with China. Energy stocks offset some of the losses as Brent crude pushed through $80 a barrel and WTI tops $72 per barrel (high $72.30 before fading) as upside momentum continues for the sector. Treasuries extend recent losses, with yields perking up as the 10-year tops 3.11% after a much stronger than expected Philly Fed survey manufacturing data point. Standing out again today, the small-cap benchmark Russell 2000 index which hit a fresh all-time intraday high (after best record close of 1,616.37 yesterday) as small caps still seen as resilient in rising dollar environment and trade fears. Healthcare sector in focus today after big cancer meeting ASCO (early June) abstracts released last night – moving shares of LOXO, DVAX, JNCE, NKTR among others. Also lots of M&A related news in the energy sector, specifically the MLP Pipeline area (details of three deals below). Overall nice bounce for stocks after initial weakness/dollar strength.

Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar up slightly, bouncing off earlier lows, helped by better economic data readings today; the euro trades back below 1.18, while the dollar rises to 110.75 vs. the yen; the Pound little changed just under 1.35
· Precious metals remain pressured as the dollar rises and rate hike expectations increase; gold prices back near December lows, trading below $1,290 an ounce
· Energy futures advance, as WTI crude tops $72 per barrel and Brent cracking above the $80 per barrel mark as fears of supply disruptions amid the Iran sanctions, the current reduced output in Venezuela, ongoing geopolitical issues in the Mideast and mostly bullish inventory data in the U.S. (though not this week), continue to support rising oil prices globally
· Treasury markets are now little changed as the benchmark 10-year yield back down around the 3.095% level after topping 3.11% previously on stronger than expected manufacturing data (raising expectations the Fed may get more aggressive on pace of rate hikes amid surging economy); the 2-yr yield down the last 2-days at 2.56%, while the 30-yr above 3.22%

Economic Data
· Weekly Jobless Claims rose 11K to 222K above last weeks unrevised 211K and the est. 215k; the 4-week moving average fell by 2,750 to 213,250 (and for the second week in a row these claims were at the lowest level since 1969); continuing claims fell 87K to 1.707M in the latest week
· Philly Fed manufacturing index rises to better-than-expected 34.4 in May, handily topping the 21.0 estimate; general business conditions were 23.2 in the prior month: component break-down: May prices paid fell to 52.6 from 56.4 while new orders rose to 40.6 vs 18.4 and employment rose to 30.2 vs 27.1; shipments rose to 25.8 vs 23.9 prior
· U.S. Q1 Household debt rose 0.5% from prior quarter to $13.21 Trillion; Mortgage delinquency rate improved to 1.22% from 1.27% prior quarter; student loan delinquency rate decreased to 10.66% from 10.96% prior quarter; the lowest since 2nd quarter 2012; student loan debt total at $1.407T from $1.378T in 4Q a change of $29b
· The 30-year fixed mortgage rate for week ended today rose to 4.61% from 4.55% according to data from Freddie Mac; the 15-year rate avg 4.08%, up from 4.01% a week earlier; the 30-year rate of 4.61% matches highest level since May 2011

Sector Movers Today
· Retailers; Dow component WMT posted Q1 EPS beat by 2c on better revs $122.7B on slightly better comps (said Q1 e-commerce sales rose 33% y/y vs 4Q’s 23% gain); BJ’s Wholesale Club Inc., the retailer which was taken private by Leonard Green & Partners LLP and CVC Capital Partners in a 2011 buyout, filed for an IPO; PLCE shares fall as Q1 EPS and revs miss by wide margin and posts unexpected comp sales decline (-1.8%) vs. est. up 2.5%, though guides Q2 above views; DDS rises after earnings as reports a 2% increase in total merchandise sales and comparable sales during Q1/while revs and EPS for Q1 top views; JCP shares fall after cutting its profit forecast for the year after sales trailed estimates during an unseasonable cold spell (follows stronger results from Macy’s yesterday), while comp sales rose a smaller 0.2% vs. est. above 2%
· MLP sector; lot of news in pipeline space today: 1) ENB said it would bring its sponsored vehicles and all liquids and gas pipeline assets under a single listed entity. Enbridge said it would buy in outstanding shares of its various corporate units, including SEP for a value of C$11.4B ($8.94B) https://reut.rs/2Kx8KcE ; in another deal, 2) WMB to buy WPZ in all-stock deal valued at $10.5B deal will mitigate negative impact from recently amended tax rules that removed a tax allowance for MLPs, add cash available for dividends; https://reut.rs/2KwupBT ; Lastly, 3) LNG proposes buying all outstanding shares of Cheniere Energy Partners LP Holdings (CQH) it does not already own in a stock-for-stock exchange that would value CQH at ~$6.54B; LNG offers to exchange 0.45 of its shares for each outstanding CQH share in a deal that would value CQH at $28.24 per share https://on.mktw.net/2L67I8y ; ETE upgraded to buy at Bank America and raise tgt to $20
· Refiners; the refining sector upgraded to attractive from in-line at Morgan Stanley saying refining margins are expected to expand 30% through 2020. However, supply struggles to keep up with robust demand as the world needs three refineries every year to match demand growth, and it will fall short by one refinery each year through 2020; said PBF, VLO (which was upgraded to OW) and PSX would see greatest benefit from the IMO 2020, almost doubling EBITDA levels on average in its coverage (said MPC and VLO top picks)

· DDS +5%; after earnings as reports a 2% increase in total merchandise sales and comparable sales during Q1/while revs and EPS for Q1 top views
· ESND +11%; as Staples-owner Sycamore offers to buy workplace wholesaler Essendant (ESND); Sycamore is offering to buy the rest of the company for $11.50 per share https://cnb.cx/2rM29Eg
· IMMU +8%; abstract showed sacituzumab govitecan (IMMU-132) induced objective responses in heavily pre-treated hormone-receptor positive/HER2-negative metastatic breast cancer patients
· LOXO +13%; preliminary results which showed that its new LOXO-292 experimental cancer drug led to tumor shrinkage in nearly 70% of patients regardless of where their cancer originated
· MLNX +3%; as boosted its Q2 and full year outlook
· VLO +4%; after spike in energy prices and Morgan Stanley upgrade to overweight
· WWE +11%; after Guggenheim said reports pertaining to the UFC’s new TV rights continue to bolster their confidence that our outlook for WWE’s U.S. TV rights renewal is not only achievable but appears increasingly conservative

· BPMC -6%; falls after positive LOXO abstract data – Stifel said confident that discrepancy in overall response rate (ORR) between data of LOXO-292 and Blueprint Medicines’ BLU-667 will meaningfully narrow as Loxo’s results mature
· CSCO -3%; reported Q3 profit and revenue that topped analysts’ estimates but tepid guidance for Q4 weighs on shares
· DVAX -15%; as RBC Capital noted ASCO abstract for SD-101 data continue to show potential activity, though open-label nature continues to make interpretation challenging
· IDXX -2%; shares down a 4th day – fell -4.5% yesterday as ZTS acquired ABAX yesterday in deal
· JACK -6%; after Q2 EPS and system-wide comp. sales that missed estimates and failing to provide long-term forecasts
· JNCE -32%; downgraded to market perform at Wells Fargo saying overall response rates for JTX-2011 monotherapy in gastric cancer and in triple negative breast cancer, as well as for JTX-2011 plus Opdivo in gastric cancer and in triple negative breast cancer are underwhelming
· NKTR -10%; after ASCO abstracts posted last night showed lower response rates than previously reported for Nektar’s NKTR-214 in combination with BMY’s Opdivo for melanoma

· Aircastle (AYR) 7.9M share Spot Secondary priced at $21.50
· Atkore (ATKR) 7.23M share Spot Secondary priced at $20.20
· Axon (AAXN) 4.3M share Secondary priced at $53.00
· Curo Group (CURO) 5M share Secondary priced at $23.00
· Pluralsight (PS) 20.7M share IPO priced at $15.00


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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