Morning Preview: May 21, 2018

Scott GreenDaily Market Report

Early Look

Monday, May 21, 18

U.S. stock futures jump, with Dow futures up over 200 points, as U.S. Treasury Secretary Steven Mnuchin said the U.S. trade war with China is “on hold” after the world’s two largest 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. Following the headlines, the U.S. dollar shoots back to its highest level since early December while gold falls to a fresh 2018 low. European stocks also mostly higher as U.S.-China trade tensions recede, raising hopes a trade war can be averted, but Italy remains weak as Italian politics prove a drag on the region. In Asian markets, The Nikkei Index gained 72 points to settle at 23,002, the Shanghai Index rose 20 points to end at 3,213 and the Hang Seng Index jumped 186 points to close at 31,234. In Europe, the German DAX is down over -30 points at 13,075, while the FTSE 100 is up over 60 points just below 7,850.

U.S. stocks closed mostly lower on Friday, with major indexes posting modest weekly declines amid lingering uncertainty over trade negotiations between the U.S. and China, as well as bond yields that climbed this week to the highest level since 2011. The Dow Jones Industrial Average closed nearly unchanged at 24,715.09, leaving it with a 0.5% weekly loss. The S&P 500 index fell 7.15 points, or 0.3% to 2,712.98 and ended the week 0.5% lower. Meanwhile the Nasdaq Composite declined 28.13 points, or 0.4% to 7,354.34 and fell 0.7% over the week. The Russell 2000 index rose 2.8 points, or 0.2%, to 1,628.12, a third record close in a row. For the week, the index rose 1.3%.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -7.16 points, or 0.26%, to 2,712.97

· The Dow Jones Industrial Average up 1.11 points, or 0.00%, to 24,715.09

· The Nasdaq Composite slumped -28.13 points, or 0.38%, to 7,354.34

· The Russell 2000 Index advanced 1.34 points, or 0.08% to 1,626.63

Events Calendar for Today

· 8:30 AM EST Chicago Fed Nat Activity index for April

· 12:15 PM EST Fed’s Bostic speaks to Atlanta Economics Club

· 2:05 PM EST Fed’s Harker speaks in New York

Other Key Events:

· UBS Global Healthcare Conference, 5/21-5/23, in New York

· Micron (MU) analyst day today

World News

· The Trump administration won’t impose tariffs on Chinese products for now, after the two nations made progress on trade issues during two days of talks, Treasury Secretary Steven Mnuchin said on Sunday. “We’re putting the trade war on hold. So right now, we have agreed to put the tariffs on hold while we try to execute the framework,” Mnuchin said

· President Donald Trump’s lawyer Rudy Giuliani said special counsel Robert Mueller’s Russia probe into obstruction of justice by the president will wrap up by Sept. 1 because allowing it to continue longer could improperly influence the mid-term elections in November

· Japanese exports picked up in April after lackluster data the previous month; The value of exports rose 7.8% in April from a year earlier (forecast +8.7%); imports rose 5.9% (forecast +9.8%) and the trade balance was a 626-billion-yen surplus ($5.6 billion) (forecast +440 billion yen).

· Venezuelan President Nicolás Maduro won a second six-year term

Sector News Breakdown

Consumer

· Tesla (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.

· Barron’s notes the Consumer Staples Select Sector SPDR (XLP) ETF is down (-12.5%) this year, while the overall market is up around 2%. That gap comes from over-pessimistic investors and should close. Barron’s says Coca-Cola (KO) and PepsiCo (PEP) are lowering costs through innovative packaging, addressing the concerns around rising aluminum costs.

· Ryanair Holdings PLC (RYAAY) said Q1 net profit rose 10% in financial 2018 but forecast a drop in financial 2019 due to fare price pressures and higher oil costs; said it made a net profit of 1.45B for its year ended March 31 compared with EUR1.32B

· Monro (MNRO) Q4 EPS 52c/$285.6M vs. est. 50c/$285.99M; Q4 comp sales rose 10.3%

Energy

· Geopolitical earthquakes, an assertive OPEC, and production bottlenecks will likely keep pushing oil prices higher. To make the most of it, Barron’s recommends ETFs including Vanguard Energy (VDE), Energy Select Sector SPDR (XLE), iShares Global Energy (IXC), United States Oil (USO) and iShares U.S. Energy (IYE).

Healthcare

· U.S. hospital operator HCA Healthcare Inc (HCA) and private equity firm KKR & Co (KKR) have joined forces to make an offer for U.S. physician services provider Envision Healthcare Corp (EVHC), people familiar with the matter said https://reut.rs/2wW6cmk

· AstraZeneca PLC (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.

· Bioverativ’s (BIVV) BIVV001 investigational von Willebrand factor-independent factor VIII therapy extended the half-life of factor VIII to 37 hours, preliminary phase 1/2a data show

Industrials & Materials

· General Electric (GE) is nearing a deal to merge its transportation business with Wabtec (WAB),a U.S. maker of rail industry equipment, two people familiar with the matter said. A deal valuing the combined business at more than $20 billion could be announced as early as this week. https://reut.rs/2wVqDQg

· Bitcoin is coming of age, as evidenced by the guest list at the Consensus cryptocurrency conference in Manhattan this week, the industry’s biggest annual get-together. FedEx Corp. (FDX) CEO Fred Smith spoke about the potential of blockchain technology, and many of the 8,500 attendees were bank employees in suits instead of tech bros in T-shirts.

Technology, Media & Telecom

· CBS Corp. (CBS) shares mentioned positively in Barron’s saying the latest chapter in the CBS Corp. (CBS) and Viacom Inc. (VIAB) saga making it even less likely that a merger will happen, and CBS could gain 25% to return to the $65 price it had before the merger looked likely

· Privately held BMC Software Inc. is working with advisers to weigh a sale, according to Bloomberg late Friday, five years after Bain Capital and Golden Gate Capital took it private in a $6.9 billion deal. BMC has drawn interest from private equity firms including Thoma Bravo, which is considering acquiring it through portfolio company Compuware Corp

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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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