Mid-Morning Look: May 21, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Monday, May 21, 2018

U.S. equities surge to start the week after U.S. Treasury Secretary Steven Mnuchin said the U.S. trade war with China is “on hold” after the world’s two economic powers agreed to drop their tariff threats while they work on a wider trade agreement. Meanwhile, China agreed to buy more U.S. products, but without specifying a dollar amount – the news bolstering market sentiment to start the week The Dow Industrials top the 25,000 level for the first time since March (traded up as much as 350-points) as Industrials, Technology stocks (MU jumps on boosted guidance) lead the gains on easing trade tension concerns between the U.S and China (lifting multi-nationals), though the Russell 2000 index of small-capitalization stocks rose as well to fresh record highs (4th straight day of record highs). Small Caps are less impacted by strong dollar moves as they primarily receive revenues domestically. The U.S. dollar surged to 6-month highs, on the easing trade tensions as well. Early going, 29 of 30 Dow Jones Industrial Average components gained ground, led by shares of CAT, GE (on sale of division), INTC and BA. There were also a handful of merger deals announced this morning as well, moving the needle for some stocks: WAB/GE, FITB/MBFI, LH/BX, and others (all details below). Outside of a busy week of earnings in the retailing sector, most of the week should focus on trade once again.

Treasuries, Currencies and Commodities
· In currency markets, the dollar index (DXY) touched a 6-month high, rising above the 94 level before paring gains back around 93.75 as markets cheered signs of easing trade tensions between the U.S. and China. The Turkish lira was taking a major hit against the dollar on Monday, hitting a fresh record low with the dollar buying 4.5755 lira. The dollar gaining broadly vs. counterparts.
· Commodity prices; gold prices drop to fresh 2018 lows, moving under $1,290 an ounce, falling amid the stronger dollar, while oil prices add to last week’s gains, with WTI crude up over 30c topping the $71.50 level, though off last week’s best levels above $72 per barrel
· Treasury markets down slightly, as yields up slightly from Friday’s lows…but off early last week highs (10-yr touched 3.11% early last week); no major economic data today to move markets, with focus on the easing trade tensions with China

Sector Movers Today
· Retailers; DDS was upgraded to buy from underperform at Bank America; AEO was downgraded to hold at SunTrust saying while continue to believe its well-positioned from a fashion and macro standpoint, inventories and promotions have been elevated, which could limit GM upside; earnings calendar this week in retail include: AAP, AZO, KSS, TJX, URBN (on 5/22), LOW, CTRN, RL, TGT, TIF, LB (on 5/23), BBY, SSI, DECK, GPS, ROST (5/24), FL, BKE, HIBB (5/25) after positive earnings reports; from Macy’s last week, but results from WMT, JWN and JCP were a drag on retail; ULTA upgraded to positive by OTR Global; SHLD extends 15-year co-brand and private label credit card relationship with Citi
· Semiconductors; MU raises Q3 EPS view to $3.12-$3.16 from prior $2.76-$2.90 view (est. $2.85) as boosted guidance at its analyst day today; raises Q3 revs to $7.7B-$7.8B from $7.2B-$7.6B (est. $7.47B); NXPI along with other semis rally after Treasury Secretary Steve Mnuchin said the U.S. and China agreed to “put the tariffs on hold” until a trade framework can be reached
· Large Cap Pharma; GLPG announced late Sunday the publication of GLPG1690 milestones for product aimed at chronic lung disease idiopathic pulmonary fibrosis (IPF); NBRV said Phase III trial of its Lefamulin Evaluation Against Pneumonia (LEAP 2) clinical trial for the treatment of community-acquired bacterial pneumonia met all FDA and EMA primary endpoints; BMY was downgraded to hold at UBS and tgt cut to $57 as expectations for its blockbuster drug, Opdivo, and earnings per share are no longer ahead of average estimates; AZN said the U.S. FDA has approved Lokelma for the treatment of adults with hyperkalemia and said it has applied for the expanded use of its Forxiga drug in Japan
· Autos; TSLA CEO Elon Musk announced details about a high-performance upgrade for its Model 3 electric cars in a series of tweets Saturday night. Musk announced two new versions of the Model 3, both with dual motors. The performance version will cost around $78,000 and will feature a top speed of 155 mph and go from 0-60 in 3.5 seconds; MNRO mixed Q4 results on EPS beat and slight miss on revs, though comp sales rose over 10%; AAP and AZO report earnings tomorrow

Stock GAINERS
· DDS +3%; upgraded to buy from underperform at Bank America
· GE +3%; agreed to merge its railroad business with WAB in a deal valued at about $11 billion, letting GE raise some cash to fund its turnaround https://on.wsj.com/2wZOCy2
· LHO +5%; agreed to be acquired by BX for $33.50 a share in an all-cash transaction, rebuffing suitor PEB in a deal total value of about $4.8B, including debt https://reut.rs/2ID88Sf
· MBFI +13%; FITB agreed to buy MBFI in a transaction valued at approximately $4.B with about 90% of the consideration will be in stock with the rest in cash (valued at $33.56 per share) https://on.wsj.com/2LhUi9B
· MU +4%; raises Q3 EPS view to $3.12-$3.16 from prior $2.76-$2.90 view (est. $2.85) as boosted guidance at its analyst day today; raises Q3 revs to $7.7B-$7.8B from $7.2B-$7.6B (est. $7.47B)
· NXPI +2%; along with other semis rally after Treasury Secretary Steve Mnuchin said the U.S. and China agreed to “put the tariffs on hold” until a trade framework can be reached
· PF +1%; NY Post said PF has hired Evercore Partners to explore strategic alternatives https://bit.ly/2ICXMpi

Stock LAGGARDS
· AKS -3%; as steel producers decline following news that the Trump administration would delay implementing tariffs on Chinese imports into the U.S.
· BIDU -3%; extends last week’s losses after former MSFT executive Qi Lu, who was hired to oversee virtually every aspect of its business, stepped down Friday from all active management roles just 14 months in the job
· CMCM -3%; after Q1 report with downside guidance for Q2
· KOS -10%; after reports to re-drill Anapai-1 well in Block 45 encountered “shallow bore-hole stability issues
· MNRO -1%; after mixed Q4 results on EPS beat and slight miss on revs, though comp sales rose over 10%

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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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